Highland Council
External Audit Report for the financial year ended 31 March 2020
Annual Report to Members and the Controller of Audit
DRAFT report to the Audit and Scrutiny Committee 28 January 2021
Joanne BrownEngagement Leader
John BoydAudit Director
Lewis WhiteAudit Associate
AGENDA ITEM 3A15
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Financial statements at a glance
We have fulfilled our responsibilities per International Standards on Auditing (ISAs) (UK) and the Audit Scotland Code of Audit Practice throughout our work. This
final report is addressed to the Highland Council and the Controller of Audit concludes our work. We [plan to] issue an unmodified audit opinion on the annual report
and accounts. Our audit opinion includes emphasis of matter paragraphs in relation to the material uncertainty over the valuation of land and building and investment
property valuations arising as a result of Covid-19 and resultant economic downturn.
Significant audit risks were: management override of controls; the risk of fraud in revenue recognition (in accordance with ISAs UK); the risk of fraud in expenditure
recognition (in accordance with the Financial Reporting Council’s (FRC) Practice Note 10); the valuation of land and buildings (including council dwellings); and the
valuation of defined benefit pension obligations. An additional significant audit risk was identified in relation to Covid-19 which caused significant disruption to all
public sector entities in the later half of March 2020.
.
The unaudited Annual Report and Accounts were presented for public inspection on 25 June 2020. In accordance with our annual external audit plan our audit work
commenced on 27 July 2020. Due to the travel restrictions and social distancing measures introduced by the government in response to the Covid-19 pandemic, we
have delivered the audit remotely. The 2019/20 audit was challenging. Our audit testing over the Council’s property, plant and equipment valuations identified that these
were materially misstated in the prior year. A significant level of additional work from both the Council’s Finance Team and Internal Valuers was undertaken to arrive at
revised valuations for the prior year. This required additional audit procedures to be undertaken around these balances and required disclosures within the financial
statements leading to delays in finalising the financial statements. Consequently, the audit process took longer than planned with the final accounts submitted to a
special meeting of the Audit and Scrutiny committee in January 2021. We thank Officers for their support and assistance throughout the audit.
The accounts include a prior year adjustment in relation to the valuation of land and buildings, including council dwellings. During 2019/20 the Council undertook a
substantial revaluation of land and buildings, covering approximately 57% of these assets. The valuation identified material movements in the value of assets of
which £210 million related to prior years. In addition, a prior period adjustment was required in relation to the valuation of Council Dwellings. In previous years the
Council had incurred significant levels of subsequent expenditure on Council Dwellings but had not reassessed these to ensure valued in accordance with the Code
of Practice on Local Authority Accounting. Council dwellings are valued based on an existing use value for social housing (EUV-SH). This value reflects a
discounted market based valuation to reflect the lower rent from social housing. The value is materially lower than cost and therefore the Council has revised prior
year valuations to reflect the valuation on basis consistent with EUV-SH this resulted in a downward revaluation of £112 million.
We updated our audit materiality to reflect your 2019/20 draft financial statements setting Group materiality at £10.083 million (Council only: £9.774 million) being
approximately 1.2% of gross expenditure. The Group consists of the Council, the Council’s subsidiaries: High Life Highland, Nairn Common Good Fund and
Inverness Common Good Fund; and the Council’s associates: Highland and Western Isles Joint Valuation Board and Highland and Islands Transport Partnership.
Materiality is based on our assessment of what misstatement either individually or in aggregate could be significant as to be misleading to the users of financial
statements.
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Adding value through our external audit work
First and foremost our objective is to ensure we deliver a quality external audit which complies with International
Standards on Auditing (ISAs) UK and the Audit Scotland Code of Practice (2016). By ensuring our audit is efficient and
effective, underpinned by our quality arrangements, gives you assurance over our opinion.
We have continued to build on our working relationship with Officers and our understanding of the Council as an
organisation. Due to the impact of the COVID-19 pandemic, our audit work has been undertaken remotely. This has
included establishing remote access to the Council’s key finance systems and developing new ways of working with
Officers to deliver the audit including video calls and shared screen facilities. While we faced challenges during 2019/20,
particularly surrounding gaining sufficient assurance around the valuation of property, plant and equipment, we worked
with Finance Officers to agree appropriate approaches to resolve the challenges faced to support the finalisation of the
financial statements. Going forward we will work with Finance Officers to learn from the experiences in the 2019/20 audit
and look to incorporate efficient and effective ways of working remotely into our 2020/21 audit.
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ContentsSection Page
Introduction 5
Responding to significant risks 7
Accounting policies 15
Other financial statement areas 17
Narrative elements of your annual accounts 19
Overview – wider scope 20
Wider scope – Significant risks 21
Wider scope commentary 27
Appendices:
Audit adjustments 37
Action plan and recommendation 44
Follow up of prior year recommendations 48
Audit fees and independence 53
Fraud arrangements 54
Communication of audit matters 55
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IntroductionReporting
This report is a summary of our findings from our external
audit work for the financial year ended 31 March 2020.
Our work has been undertaken in accordance with
International Standards of Auditing (ISAs) (UK) and the
Audit Scotland Code of Audit Practice 2016.
Our report is addressed to the Highland Council (the
Council). In addition, in accordance with our reporting
responsibilities, the report is jointly addressed to the
Controller of Audit.. This final report will be published on
the Audit Scotland website (www.audit-scotland.gov.uk).
Our report will be presented as a draft to the Council’s
Audit and Scrutiny Committee on 28 January 2021 and
will be finalised following final approval of the financial
statements. We would like to thank the Council’s finance
team and senior officers for their support and assistance
in the audit process.
Structure of this report
In accordance with the Audit Scotland Code of
Practice 2016, in addition to our core financial
statements audit we provide conclusions on the four
dimensions of wider-scope public audit.
Our conclusions on wider scope risks identified in
the audit plan are set out in the relevant wider scope
sections of this report.
Our Opinion
For the financial year ended 31 March 2020 we plan
to issue an unmodified audit opinion on the annual
report and accounts:
• have been properly prepared in accordance with
IFRSs as adopted by the European Union, as
interpreted and adapted by the 2019/20 code
• prepared in accordance with the requirements of
the Local Government (Scotland) Act 1973, The
Local Authority Accounts (Scotland) Regulations
2014, and the Local Government in Scotland Act
2003
• Other information in the annual report including
Annual Governance Statement
• Other prescribed matters
Covid-19
As a result of the Covid-19 pandemic we considered
whether an additional financial statement audit risk was
required. As discussed with Officers in June 2020 and
communicated to the Audit and Scrutiny Committee in
September, we have recognised a further financial
statement risk in relation to Covid-19. Further details on
the risk identified and our response and conclusion to
the risks are included within the Responding to
Significant Risks section of the report.
Emphasis of matter – property valuation
We draw attention to the Council’s annual accounts
Note 7 to the financial statements (and note 2 to the
Group accounts), which describes the basis for valuing
land and buildings. Officers use an internal expert to
value their land and buildings and Investment property
portfolio on a rolling programme of revaluations. The
expert's valuation included a ‘material valuation
uncertainty’ as per VPS 3 and VPGA 10 of the RICS
Red Book Global. Consequently, less certainty and a
higher degree of caution should be attached to
management’s valuation than would normally be the
case. Our opinion is not modified in respect of this
matter.
The audit process
The unaudited accounts were published on 25 June 2020.
In accordance with our annual external audit plan our
audit work commenced on 27 July 2020. Due to the travel
restrictions and social distancing measures introduced by
the government in response to the Covid-19 pandemic,
we have delivered the audit remotely.
There was a number of adjusted misstatements to the
financial statements. These included: misstatements in
the recognition of the revaluation of property, plant and
equipment; adjustments to the actuarial valuation of
defined benefit pension scheme liabilities; errors in the
recognition of short term debtors and a client identified
error in relation to recognition of creditors as at 31 March
2020. Further details of these adjustments are contained
within Appendix 1. Due to the volume of misstatements
identified in the draft financial statements, including
revaluation of property, plant and equipment the Council’s
updated accounts were not finalised until January 2021.
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Materiality
Our audit approach was set out in our audit plan submitted to the Council on 31
March 2020 at £10.083 million (Council only: £9.774 million) being approximately
1.2% of gross expenditure. The Council’s Group consists of the Council, the
Council’s subsidiaries: High Life Highland, Nairn Common Good Fund and
Inverness Common Good Fund; and the Council’s associates: Highland and
Western Isles Joint Valuation Board and Highland and Islands Transport
Partnership. Materiality is based on our assessment of what misstatement either
individually or in aggregate could be significant as to be misleading to the users of
financial statements. Our performance materiality for the Group was set at £6.554
million (Council only: £6.353 million), being 65% of overall materiality. Our
materiality is based on our assessment of what misstatement either individually or
in aggregate could be significant as to be misleading to the users of financial
statements.
We set a lower materiality level in respect of the remuneration report, given the
interest to the users of the accounts. This was set at £5,000, linked to the
bandings used. We report to management any difference identified over
£250,000 (Trivial capped at £250,000 by Audit Scotland).
Internal control environment
During the year we sought to understand the Council’s overall control environment
(design) as related to the financial statements. In particular, we have:
• Considered procedures and controls around related parties, journal entries and
other key entity level controls.
• Performed walkthrough procedures of key financial processes including income
and expenditure recognition, journal postings, payroll, land and building
valuations, and the IAS 19 valuation of the defined benefit pension scheme.
Our work over controls is limited to our ISA requirements in understanding an
entities control environment. Our audit is not controls based and we do not place
reliance on the operation of controls, as our audit is fully substantive in nature.
We identified no material weaknesses or areas of concern from this work which
would have caused us to alter the planned approach as documented in our plan
Internal Audit
As set out in our external audit plan our audit approach is to comply with the ISAs and we
did not place formal reliance on the work of the Council’s internal audit function during the
year. We have reviewed the internal audit plan and individual reports issued to date, to
consider if any impact on our audit approach. For 2019/20 the Council’s Internal Audit
Service concluded:
“On the basis of the work undertaken during the year, it is considered that the key systems
operate in a sound manner and that there has been no fundamental breakdown in control
resulting in material discrepancy. However, as no system of control can provide absolute
assurance against material loss, nor can Internal Audit give that assurance, it is the audit
opinion that reasonable assurance can be placed upon the adequacy and effectiveness of
the Council’s internal control systems for the year to 31 March 2020.”
From our review we are satisfied that there were no areas arising from the work of internal
audit that would impact on our audit of the financial statements and that appropriate
disclosure is contained within the annual governance statement. We confirm that internal
audit is independent and has sufficient capacity and capability in fulfilling its role and remit.
Audit status as at 14 January 2021
Our audit procedures of the 2019/20 financial statements are substantially complete
subject to the following audit procedures:
• Subsequent events (up to the date of signing)
• Final Engagement Leader and Engagement Quality Control Reviewer sign off
• Final disclosure check of financial statement
• Letter of Representation
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Prior period adjustment
Note 3 to the Council Accounts and note 9 of the Group accounts describe prior year adjustments made to the financial statements. During 2019/20 the Council undertook a
substantial revaluation of land and buildings, covering approximately 57% of these assets. From further investigation it was identified that a significant proportion of the
revaluation movements related to prior years. The Council’s valuer undertook a retrospective desktop valuation of assets held. The valuation identified material movements
in the value of land and buildings relating to prior years which should have been reflected in the Council’s accounts in prior years. The net impact of the valuation
movements in the previous years was to increase the value of Property, plant and equipment upward by £43.554 million and £97.878 million as at 1 April 2018 and 31 March
2019 respectively. We note that the adjustments do not impact the Council’s General Fund position. The impact of these adjustments has been reflected in the financial
statements prior year comparators and the impact of these is summarised below:
Previously reported
balance as at 1 April
2018 (£’000)
Adjustment
(£’000)
Restated balance
as at 1 April 2018
(£’000)
Previously reported
balance as at 31
March 2019 (£’000)
Adjustment
(£’000)
Restated balance
as at 31 March
2019 (£’000)
CIES – Deficit on the provision of
services
N/A – Opening Balance sheet impact only (25,077) 5,066 (20,011)
Other Comprehensive (income) /
Expenditure
N/A – Opening Balance sheet impact only (41,308) 6,995 (34,313)
Total Comprehensive (Income) /
Expenditure
N/A – Opening Balance sheet impact only (66,385) 12,061 (54,324)
Property, plant and equipment – Land
and buildings as at 1 April 2018.(NBV)
1,198,743 139,460 1,338,203 1,236,307 203,280 1,439,587
Property, plant and equipment – Council
Dwellings (NBV)
868,383 (116,432) 751,951 883,006 (125,344) 757,662
Property, plant and Equipment – Assets
under construction (NBV)
39,983 20,526 60,509 51,589 19,942 71,531
Net impact on Assets 43,554 97,878
Revaluation Reserve 534,789 13,837 548,626 554,682 47,420 602,102
Capital Adjustment Account 998,146 29,717 1,027,863 1,023,223 50,458 1,073,681
Net impact on reserves 43,554 97,878
The Council’s Group financial statements have also been updated to separately disclose Investment Property on the Balance Sheet of £30 million. Previously these had been
incorporated into Group Property, plant and equipment but as a material class of asset should be separately reported. This adjustment is of disclosure only and did not impact
the Council’s reserves.
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Risk area Identified audit risks at planning – From External Audit Plan
Risk of fraud in
revenue recognition
As set out in ISA 240 there is a presumed risk that revenue may by misstated due to improper recognition of revenue. For annual grant
funding we consider this to be well forecast and agreed directly to grant allocation letters. Likewise, for council tax and non-domestic rate
income streams, we consider these revenue streams to be well forecast and not inherently at risk of manipulation. For these revenue streams,
we therefore rebut the presumed risk of fraud in revenue recognition. We consider the risk to be prevalent in other service income (2018/19
totalled £159 million) with a focus around the year end transactions and balances where financial performance is subject to greater external
scrutiny. Therefore, we focus our testing on cut-off of service income.
Work completed
• Walkthroughs of the controls and procedures over service income (for those services with material revenue streams);
• Substantive testing (at an elevated risk level) income recognised pre and post year end to identify if there is any potential misstatement
• Substantive testing (at an elevated risk level) of income recognised in the final two months of the year to identify if this has been potentially overstated
• Review and sample testing of accrued income, prepayments and debtors to gain comfort around the recoverability of balances at the year end.
Our conclusion
Based on our testing we conclude:
• We did not identify any exceptions in our cut-off testing of year end income.
• We did not identify any material misstatements arising from our testing of accrued income, prepayments and debtors at the year end or material concerns around the
recoverability of balances. As detailed in appendix 1, during the course of there were two adjustments to debtors position as at 31 March 2020 where the Council had not
recognised capital grants receivable. We are satisfied that these did not reflect material omissions and did not impact on the Council’s outturn position for the year
• We did not identify any indication of fraudulent recognition of revenue transactions around the year end within our testing.
Responding to significant risks
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Risk area Identified audit risks at planning – From External Audit Plan
Risk of fraud in
expenditure
recognition
Operating expenditure is understated or not treated in the correct period (risk of fraud in expenditure). As set out in Practice note 10 (revised)
which applies to public sector entities. As payroll expenditure is well forecast and agreeable to underlying payroll systems there is less
opportunity for the risk of misstatement in this expenditure stream. Similarly, finance costs (2019/20: 58.5 million) which primarily relate to
interest payment and finance charges are well forecast and relatively consistent year on year and therefore there is less opportunity for
material misstatement. Similarly depreciation, amortisation and impairment costs and other capital movements (£2019/20: £123.6 million)
relate to capital accounting movements and therefore subject to statutory adjustments and therefore less likely to be subject to manipulation.
We therefore focus on other material non-pay service expenditure (2019/20: £349 million). As financial performance targets are measured
externally on year end outturn, we consider the risk to be particularly prevalent around the year end and therefore focus our testing on cut-off
of non-pay expenditure.
Work completed
• Walkthroughs of the controls and procedures over non-payroll expenditure
• Substantive testing (at an elevated risk level) of expenditure recognised post year end to identify if there is any potential understatement of expenditure
• Substantive testing of post year end bank statements and review of minutes to identify any potential unrecorded liabilities.
• Reviewing accruals and deferred income around the year end to consider if there is any indication of understatement of balances held through consideration of
accounting estimate and challenging management (Senior Officers) around the completeness and accuracy of these.
Our conclusion
Based on our testing we conclude:
• The Council have historically applied a threshold of £250,000 when considering whether to accrue for post year end expenditure items received after the accounts closure
process (being late April). Due to the impact of Covid-19, a number of third party invoices were delayed Due to the volume of post year end expenditure we found that
the application of the threshold of £250,000 was not appropriate. Consequently, our audit testing identified errors around the Council’s expenditure cut-off. Following
further Senior Officer review of expenditure transactions in April and May, Officers concluded that there was an understatement of £1.6 million as at 31 March. Our audit
testing identified further errors which we have extrapolated across the total population. The total error (factual and extrapolated) is £5.12 million. Officers have not
adjusted on the grounds the identified and extrapolated error does not represent a material misstatement to the accounts. Details provided in Appendix 1.
• We did not identify an indication of fraud in expenditure recognition. While errors were identified in our cut-off procedures these did not represent material misstatements
to the financial statements.
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Risk area Identified audit risks at planning
Management
override of controls
As set out in ISA 240 there is a presumed risk that management override of controls is present in all entities. This risk area includes the
potential for management (Senior Officers) to use their judgement to influence the financial statements as well as the potential to override the
Council’s controls for specific transactions.
We consider those key judgements that are most susceptible to significant audit risk of management override are those over expenditure
recognition. These are areas where management (Senior Officers) has the potential to influence the financial statement through estimate and
judgement.
Work completed
Accounting estimates:
We assessed the risk of management override, consider those key accounting estimates and judgements that could impact on the organisations financial results and where
there is an inherently increased risk of fraudulent misstatement or where management (Senior Officer) bias could result in a material misstatement. In particular we focused
on estimates around material provisions, accruals and defined benefit obligations. In response to the significant audit risk we:
• considered the design of controls in place over key accounting estimates and judgements including: the valuation of land and building; valuation of defined benefit pension
scheme obligations and provisions for bad or doubtful debts, including Council tax debtors.
• Reviewed accounting estimates for management bias / indication of fraud that could result in material misstatement. This included review of estimates as at 31 March
2020 and retrospective review of those estimates as at 31 March 2019.
Journals testing:
We performed risk based procedures to identify journals that, based on our planning assessment, presented a higher risk of fraud or error. In response to the significant risk
we:
• Assessed the design of controls in place over journal entries, including how these are prepared, authorised and processed onto the financial ledger;
• We risk assessed the journals population to identify large or unusual journal entries, such as those that are not incurred in the normal course of business, or those entries
that may be indicative of fraud or error that could result in material misstatement. We tested these journals to ensure they are appropriate and that suitably recorded in
the financial ledger;
• We performed targeted testing of transactions around the financial year end reviewing those journals are large or otherwise appear unusual to understand the rationale
for the transaction.
Our conclusion
Based on our testing we conclude:
• There was no evidence of management override in our testing.
• The Council’s financial statements identify significant areas of estimation and judgement including: the Covid-19 impact on the valuation of property, plant and equipment;
the useful economic life of property, plant and equipment; the valuation of the defined benefit scheme obligations; debtor provisions (arrears); PPP and service
concession arrangements obligations; and fair value measurements. We have not identified any indication of management bias or fraud in the estimates applied.
• We have not identified any unusual or inappropriate transactions during the course of the year that would indicate management manipulation of the financial results.
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Risk area Identified audit risks at planning – From External Audit Plan
Valuation of
property, plant and
equipment (Land
and buildings)
In accordance with the Code of Practice on Local Authority Accounting in the United Kingdom 2019/20 (‘the 2019/20 Code’) property, plant
and equipment is held at current value. The exact valuation basis depends on the nature and use of the assets. For land and buildings
(where cost depreciated historical cost is not considered a reasonable proxy for current value), these assets need to be revalued with
sufficient frequency to ensure the carrying value as at 31 March is not materiality different to that if they had been valued at that date. As at
31 March 2020, the Council held PPE of £2.835 billion, including Other Land and Buildings of £2.2 billion. Given the value of PPE held by the
Council and the level of complexity and judgement in the estimation of valuations, there is an inherent risk of material misstatement in the
valuation of land and buildings. The risk is less prevalent in non land and buildings assets as these are generally held at depreciated historic
costs, as a proxy of fair value and therefore less likely to be materially misstated.
Work completed
• Walkthrough of the controls and procedures over the valuation of land and buildings to gain an understanding of the arrangements in place at the Council for ensuring the
carrying value of land and buildings remains appropriate and in accordance with IAS 16 and the Code.
• Challenged the underlying assumptions continued within the valuation of land and buildings and the reasonableness of these including the suitability of any indices used
in the valuation.
• Reviewed the processes in place to support the valuers assessment of potential impairment of PPE and considering if there are any indications of impairment of PPE not
recognised by the Council.
• Challenged officers to demonstrate that the valuation of land and buildings as at 31 March 2020 was materially consistent with the valuation that would be obtained if a full
valuation had been undertaken at the balance sheet date.
• Using our auditor valuations expert, challenged the Council on the valuation instructions and approach adopted in valuing land and buildings as at 31 March 2020.
Our conclusion
Council Dwellings:
• Our audit testing of Council Dwellings valuations in the draft accounts were not held in accordance with the CIPFA Code of Practice on Local Authority Accounting. The
Code requires Council Dwellings to be held at current value, being Existing Use Value – Social Housing (EUV-SH), a valuation basis that reflects social rental rates.
Assets should be valued with sufficient regularity that their carrying value at the balance sheet date is not materially different than if they had been subject to valuation. In
the draft accounts, the Council held £147 million of Council Dwelling assets at cost, primarily relating to subsequent expenditure incurred since the last valuation date
(2015/16). Consequently, these was not held in accordance with the Code representing a risk of material overstatement in the accounts. The issue was identified in the
current year as it is the first formal valuation exercise over land and buildings since 2015/16 with previous valuation reviews not identifying material overstatement.
• The Council’s valuer subsequently undertook a retrospective desktop revaluation of these assets to arrive at a valuation as at 1 April 2018 and 31 March 2019. The net
impact on the carrying value of Council Dwellings as at 31 March 2020 was a reduction in NBV of £112 million from the draft financial statements. This included an
opening balance sheet prior year adjustment of a downward valuation of £139 million as at 1 April 2018. As this level of misstatement is material to the financial
statements, the Council has amended the prior year figures (See prior period adjustment).
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Risk area Our conclusion continued
Valuation of
property, plant and
equipment (Land
and buildings)
Land and Buildings
• In accordance with the Code, the Council adopts a rolling programme of revaluations where assets are revalued at least every five years.
During 2019/20 the Council undertook a significant revaluation exercise across land and buildings with over £1 billion of land and buildings
(excluding Council Dwellings) revalued.
• The exercise resulted in a material movements in the carrying value of land and buildings. Audit procedures over these revaluations,
including comparing revaluation movement to market price fluctuations, identified that the movement was attributable to previous financial
years. Subsequently, the Council’s valuer undertook a retrospective valuation of those assets revalued in the year as well as assets not
subject to revaluation to confirm that that the carrying value in the accounts was not material different to that if formal revaluation had taken
place (in accordance with the Code).
• From the retrospective revaluation work undertaken it was identified that land and buildings was cumulatively understated by £139 million
and £203 million as at 1 April 2018 and 31 March 2019 respectively. As this level of misstatement is quantitatively material to the financial
statements, the Council is restating the prior year balances.
There are opportunities to enhance the Council’s revaluation process. Our audit work in the year identified that the valuation programme did not
ensure that asset values were being considered with sufficient frequency to confirm that these are appropriately valued at current value. In
addition, the Council had not undertaken a comprehensive review of those assets not subject to revaluation as at 31 March 2020 to confirm that
these assets carrying were appropriate. Our testing also found errors in individual asset revaluations in year including errors in the valuation
formula applied or assets missed from the initial valuation summary. Furthermore, while the Council’s valuer documents valuation assumptions
on the revaluation database, there is no formal revaluation report provided to Senior Officers to enable effective scrutiny and challenge of the
valuation assumptions adopted. Given the significance of the carrying value of property, plant and equipment and the level of estimation and
judgement around the valuation, it is critical that Officers ensure they have robust processes in place for the effective review, scrutiny and
challenge of the Council’s valuation to ensure that assets continue to be valued in accordance with the Code and RICS guidance.
Action plan point – 1
Emphasis of matter – Material uncertainty in relation to the valuation of land and buildings:
The Royal Institute of Chartered Surveyors (RICS) have issued a valuation practice note regarding material uncertainties in valuations as a
result of impacts to the market caused by Covid-19. The RICS Red Book defines material uncertainty as ‘where the degree of uncertainty in a
valuation falls outside any parameters that might normally be expected and accepted. Due to the impact of Covid-19 on markets, including
reduced level of data points to support valuations, the Council’s valuers have reported their valuation advice on the basis of ‘material valuation
uncertainty’ as per VPS 3 and VPGA 10 of the RICS Red Book Global Standards. Consequently, less certainty, and a higher degree of caution,
should be attached to the valuation advice than would normally be the case. The Council have updated the accounts to disclose the material
uncertainty within note 7 (Accounting policies). In addition, within the Group Accounts, the Group holds £30 million of Investment Properties.
The valuer has reported a similar material valuation uncertainty in relation to these assets. This has been included within Note 2 to the Group
Accounts. We have included emphasis of matter paragraphs within our independent audit report to highlight these matters to the reader of the
accounts. Our audit opinion is not modified in respect of these matters.
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Risk area Identified audit risks at planning – From external audit plan
Valuation of defined
benefit pension
scheme (LGPS)
The Council participates in the Highland Council Pension Fund, a local government pension scheme. The scheme is a defined benefit
pension scheme and in accordance with IAS 19: Pensions, the Authority is required to recognise its share of the scheme assets and liabilities
on the statement of financial position. As at 31 March 2019 the Council had pension fund liabilities of £338 million.
Hymans Robertson UK LLP provide an annual IAS 19 actuarial valuation of the Authority’s net liabilities in the pension scheme. There are a
number of assumptions contained within the valuation, including: discount rate; future return on scheme assets; mortality rates; and, future
salary projections. Given the material value of the scheme liabilities and the level of estimation in the valuation, there is an inherent risk that
the defined benefit pension scheme could be materially misstated within the financial statements.
Work completed
• Walkthroughs of the controls over the valuation of pension scheme liabilities, including information and instructions provided to the pension fund and actuary
• Obtained an understanding the arrangements in place at the Council for reviewing the assumptions adopted by the actuary and suitability of these for the Council
• In accordance with Audit Scotland planning guidance, we used the work performed by PricewaterhouseCoopers (PwC) in undertaking a central review of actuarial
assumptions and challenged the suitability and reasonableness of the Council’s assumptions adopted by the actuary in arriving at the defined benefit pension scheme
liability.
• We tested the underlying data supporting the valuation to ensure these are consistent with the Council’s underlying records
Our conclusion
Based on our testing we conclude
• The assumptions adopted by the Council in arriving at the IAS 19 actuarial valuation of the net defined benefit pension scheme liabilities were reasonable.
• The data used in the actuarial valuation was consistent with the Council’s underlying records.
• The Council’s actuarial valuation included an allowance for the estimate of the Council’s likely future pension obligations in relation amounts arising in relation to unlawful
discrimination (“McCloud/Sargeant”) within historic changes to local government pension fund terms and conditions. In June 2020, the UK Treasury have proposed
remedial action as to the settlement of these arrangements. The settlement is lower than the initial estimate made by the actuary. As the UK Treasury announcement
reflects more accurate information around conditions that existed at the balance sheet date, this is considered an adjusting post balance sheet event. The Council
obtained a revised IAS 19 actuarial valuation, incorporating a more accurate estimate of the McCloud obligation. This revised actuarial valuation reduced the net defined
benefit liability by £5.876 million and has been included as an adjustment arising during the audit and is included in appendix 1.
• The Council’s unaudited IAS 19 pension liability made no allowance for the impact of the Guaranteed Minimum Pension (GMP) on future pension obligations. GMP was
accrued by members of the Local Government Pension Scheme between 6 April 1978 and 5 April 1997. The value of GMP is inherently unequal between males and
females for a number or reasons, including a higher retirement age for men and GMP accruing at a faster rate for women; however overall equality of benefits was
achieved for public service schemes through the interaction between scheme pensions and the Second State Pension. The introduction of the new Single State Pension
in April 2016 disrupted this arrangement and brought uncertainty over the ongoing indexation of GMPs, which could lead to inequalities between male and female
benefits. The Council’s actuary estimated that the potential impact of GMP indexation would be an increase in the pension liability of £2.906 million for Highland Council.
The Council received a further revised IAS 19 actuarial valuation incorporating the impact of GMP indexation and the ISA 19 liability was updated in the accounts. This is
included as an audit adjustment arising during the audit in appendix 1.
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Risk area Identified risk in June 2020 resulting in an amendment to the plan (Audit and Scrutiny September 2020)
Covid-19 The global outbreak of the Covid-19 pandemic has led to unprecedented uncertainty for all organisations, requiring urgent business continuity
arrangements to be implemented. We anticipated current circumstances would have an impact on the production and audit of the financial
statements for the year ended 31 March 2020, including and not limited to;
• Remote working arrangements and redeployment of staff to critical front line duties may impact on the quality and timing of the production
of the financial statements, and restrict the evidence we can obtain through physical observation;
• Volatility of financial and property markets will increase the uncertainty of assumptions applied by Senior Officers to asset valuation and
receivable recovery estimates, and the reliability of evidence we can obtain to corroborate management (Senior Officer) estimates;
• Financial uncertainty will require Officers to reconsider financial forecasts supporting their going concern assessment and whether material
uncertainties for a period of at least 12 months from the anticipated date of approval of the audited financial statements have arisen; and
• Disclosures within the financial statements will require significant revision to reflect the unprecedented situation and its impact on the
preparation of the financial statements as at 31 March 2020 in accordance with IAS1, particularly in relation to material uncertainties.
We therefore identified the global outbreak of the Covid-19 virus as a significant audit risk.
Work completed
Worked with Officers to understand the implications the response to the Covid-19 pandemic has had on the Council’s ability to prepare the financial statements and update
financial forecasts, and assessed the implications for our materiality calculations;
• Evaluated the adequacy of the disclosures in the financial statements that arose in light of the Covid-19 pandemic;
• Evaluated whether sufficient audit evidence could be obtained through remote technology;
• Evaluated whether sufficient audit evidence could be obtained to corroborate significant estimates such as recovery of receivable balances; and
• Evaluated Officer’s assumptions that underpin the revised financial forecasts and the impact on the Council’s going concern assessment taking into accounts Audit
Scotland’s planning guidance that local authorities are expected to prepare accounts on a going concern basis in line with with the Financial Reporting Council’s Practice
Note 10..
Our conclusion
Based on our testing we conclude:
• Officer’s assumptions underpinning financial forecasts and the going concern assessment have adequately considered the potential impact of Covid-19.
• We have not identified any significant impact on the Council’s debtor recovery, although acknowledge that the majority of these are with other public bodies
• The impact of COVID-19 has resulted in a material uncertainty surrounding the valuation of property, plant and equipment (see Valuation of Property, plant and
equipment significant risk).
• We noted in our expenditure cut-off testing that the impact of Covid-19 resulted in significant increase in delayed expenditure transactions around the year end. This
contributed to identified misstatements in the recognition of expenditure relating to 2019/20. However, audit are satisfied that expenditure and creditor balances are free
from material misstatement as at 31 March 2020.
• The Council have adequately assessed and disclosed the impact of Covid-19 on the Council’s governance arrangements, particularly the arrangements in place beyond
mid March 2020.
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15
Accounting policies Accounting
area
Summary of
policy Comments Assessment
Accounting
policies
Application of
IFRS and
deferral of IFRS
16: Leases.
The Council’s Accounting policies are in accordance with the code of Practice on Local Authority Accounting in the United
Kingdom 2019/20, supported by Internal Financial Reporting standards (IFRS), unless legislation or statutory guidance
required different accounting treatment. These have been applied consistently to the previous year. No new International
Financial Reporting Standards (IFRS) have been adopted in the year as the adoption of IFRS 16 for public bodies has
been delayed until accounting periods beginning 1 April 2022 as a result of the Covid-19 pandemic.
Green
Revenue
recognition
Funding and
income
The Council’s accounting policies summarise the when income transactions are recognised in the Council’s
Comprehensive Income & Expenditure Statement. While we are satisfied that the Council’s recognition of income and
funding during the year is in accordance with the requirements of the Code, we note that accounting policies could be
enhanced to meet the full requirements of IFRS 15: Revenue from contracts with customers. In particular, the Council’s
revenue recognition policy should outline the five step approach to cover the performance conditions to be satisfied to
recognise material revenue streams. We are satisfied that the disclosure misstatement is not material to the user of the
accounts. As part of the wider review of financial statements preparation process (Action Plan point -2 ) there is an
opportunity for Officers to review accounting disclosures in accordance with the Code.
Amber
Judgements Critical
judgements
The Council draft accounts disclosed critical judgments around future local government funding. Following our
recommendations, Officers added critical judgements around the accounting treatment of PPP / Service concession
arrangements on the basis that the assets and liabilities are recognised in accordance with the Code as qualifying as
service concession arrangements. The current disclosure could be enhanced to provide the reader a greater
understanding around the critical judgement made by Officers in preparing the accounts and the impact on the accounts.
In addition, we do not consider local government funding uncertainty as a Critical Judgements in the accounts. (Appendix
1).
Amber
Estimates Assumptions
made about
future and other
Major sources of
Estimation
uncertainty
The Council’s unaudited financial statements included the following areas of significant risk of material adjustment in the
forthcoming financial year: property, plant and equipment; LGPS pensions liability; debtor provisions; and Council tax
provisions. From review of the disclosure, we do not agree with the Council’s conclusion that debtors or Council tax
provision as major sources of estimation uncertainty as given their current carrying value we do not consider these
balances to be of significant risk of material misstatement in 2020/21. Furthermore, we raised an audit adjustment to
reflect the material valuation uncertainty disclosure over property, plant and equipment within the accounts and enhance
disclosure around the material uncertainty.
Amber
Assessment
Marginal accounting policy which could potentially be open to challenge
Accounting policy appropriate but scope for improved disclosure
Accounting policy appropriate and disclosures sufficient
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16
Accounting
area
Summary of
policy Comments Assessment
Group
accounts
Group accounts In accordance with the Code, the Council has prepared group accounts. The Group accounts consolidated the financial
activities of the local authority group consisting of the Council, the Council’s subsidiaries: High Life Highland, Nairn
Common Good Fund and Inverness Common Good Fund; and the Council’s associates: Highland and Western Isles
Joint Valuation Board and Highland and Islands Transport Partnership.
The Council administers Charitable Trust Funds: Highland Council Charitable Trusts and Highland Charities Trust. In
addition it has non-material interests in Highland Opportunity Limited and Eden Court Highlands/ While these are
disclosed within the financial statements, they are excluded from consolidation into the Group Accounts on the grounds of
materiality. We are satisfied that the approach taken by Officers is appropriate and in line with the requirements of the
Code. In accordance with Section 106 of the Local Government (Scotland) Act 1973, we are appointed auditors to provide
an audit opinion on charitable trusts which are registered with the Office of Scottish Charities Regulator (OSCR) where
the Council, or some members of the Council, act as Trustee. We have issued unmodified opinions for the financial
statements for the year ended 31 March 2020.
Green
Significant
Trading
Operations
Significant
Trading
Operations
The Council has one significant trading operation (STO), Fishery, Piers and Harbours, which operates in a commercial
environment. In accordance with the Local Government (Scotland) Act 2003 the significant trading operation is required to
break even over a rolling three year period. The STO reported a surplus of £1.409 million for the year ended 31 March
2020, and an three year surplus of £5.8 million. As a result, we are satisfied that the STO’s financial performance has
operated in accordance with the 2003 Act and performance has been appropriately reported in the financial statements.
Green
General Financial
statements
preparation
While the draft financial statements were produced and published for public inspection prior to the end of June 2020 in
accordance with the legislative timeframe, our audit identified a number of significant misstatements in the quality of the
financial statements and underlying records. This included significant prior period misstatements to property, plant and
equipment and audit misstatements around transactions and balances around the accounting year end. As a
consequence the audit process and finalising of the accounts was significantly delayed and the accounts will not be
signed until January 2021. As noted in Appendix 1 our audit testing identified a number of quantitative and qualitative
misstatements to the financial statements. While we recognise 2019/20 had unique challenges, including the impact of
Covid-19 on financial reporting arrangements, it is important that the Council has sufficient resources to support the
preparation of the accounts, including internal review and scrutiny prior to audit inspection.
Action plan point - 2
Amber
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Going concern
Practice Note 10 provides guidance on applying ISA (UK) 570 Going Concern to the audit of public bodies. In the public sector, when assessing whether the going concern
basis of accounting is appropriate, the anticipated continued provision of the services is more relevant to the assessment than the continued existence of a particular public
body. In accordance with Audit Scotland planning guidance, we have considered the suitability in the Council preparing accounts on a going concern basis. As we have no
cause for concern that the Council's services will continue to be delivered for the foreseeable future and that these could only be discontinued by statutory provision, we are
satisfied that the going concern basis of accounting is appropriate.
As part of responsibilities under the code of Audit Practice, as part of our wider scope audit work we consider the Council's financial position and financial sustainability. The
findings and conclusions from our work in this area is included within the Financial sustainability section of this report.
Objection to the financial statements
The Council received a statutory objection to the 2019/20 financial statements under Section 101 of the Local Government (Scotland) Act 1973. As appointed auditors, we
have considered the objection in accordance with this Act and the Audit Scotland Technical Guidance Note (TGN) 2020/3 (revised): Guidance on statutory objections to
local government annual accounts. The objection was predominantly around the Council’s administration of the Insurance Fund and compliance with the Local Government
(Scotland) Act 1975 around the administration of the Insurance Fund. As at 31 March 2020, the Council held an Insurance Fund of £1.912 million. We have concluded our
investigation and are satisfied that the Council has not applied the Insurance Fund illegally and are satisfied that there is no material misstatement to the Council’s financial
statements. Over the last three years, the Council has benefited from reduced external premium costs Insurance Fund due to higher insurance excesses. Our
consideration found that while the Council had used the Insurance Fund in accordance with the provisions of the 1975 Act, there was an opportunity to enhance the
transparency around the application of the Fund, including greater evaluation and reporting of the internal insurance risk being held by the Council through reducing the level
of Insurance cover. Good practice recommends regular actuarial assessment of the Insurance Fund to quantify the risk being managed by the Council and therefore better
inform Officers and Councillors around the level of Insurance Fund that the Council should maintain.
Action plan point - 3
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Fraud and irregularity
The Council has arrangements in place to help prevent, detect and mitigate the risk of fraud or irregularity, including whistleblowing policy and confidential helpline for
reporting fraud. While we consider these to be reasonable, no arrangements can fully prevent against the risk of fraud, theft or irregularity. We are not aware of any material
frauds at the Council during the course of the year and have confirmed this with Senior Officers and report to Audit Scotland through quarterly fraud reports.
The Council participates in the National Fraud Initiative (NFI), a counter fraud exercise co-ordinated by Audit Scotland working together with a range of Scottish public
bodies, external auditors and the National Audit Office to identify fraud and error. We found the Council’s arrangements for participation in the NFI exercise during 2019/20
to be satisfactory. The Council has effective arrangements in place for the submission of data and investigation of potential matches.
Early retirement
During 2019/20 two former Senior Directors left the organisation. The Local Government (Discretionary Payments and Injury Benefits) (Scotland) Regulations 1998 make
provision for authorities to make discretionary payments to local government employees to pay compensation for premature retirement. One former director was credited
with 2 years additional period of service which is reflected as a lump sum of £95,701 and annual compensation for loss of office of £2,910 with strain on pension fund costs
of £376,918. This, taken together, amounted to a total Exit Package of £475,529. In considering the early retirement, the Council evaluated the cost of the severance
package against estimated savings. This was approved through the Early Release Sub-Committee and the Council’s Corporate Resources Committee in May 2019.
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Narrative elements of your annual accountsIn accordance with our responsibilities we have reviewed your narrative aspects of the Annual Accounts and Report. We have considered the consistency of this
narrative with our understanding and the financial statements and have set out our observations below.
Management commentaryThe information contained within the Management Commentary is consistent with
the financial statements. Key issues and risk are well articulated within the report
as well as fund performance for the year.
The Management Commentary has been prepared in accordance with the
statutory guidance issued under the Local Government in Scotland Act 2003.
There are opportunities to further develop the Management Commentary within
the accounts. In particular, providing the reader of the accounts greater
understanding of financial performance in the year.(Action plan point – 2)
Overall ObservationsThe ‘front end’ of the accounts provides details on the overall Council’s financial
and non-financial performance during the year and key areas of focus looking
forward. The front end of the accounts uses graphics to summarise key aspects of
financial performance during the year.
The front incorporates the requirements and guidance continued within statute
including; The Local Government in Scotland Act 2003, and Delivering Good
Governance in Local Government Framework 2016.
Remuneration report
The remuneration report has been prepared in accordance with Local Authority
Accounts (Scotland) Regulations 2014. The Remuneration disclosures were
updated to include all named officers (including those who had left in the prior
year).
Governance StatementThe Governance Statement has been prepared in accordance with the Local
Authority Accounts (Scotland) regulations 2014. The statement is supported by
Officer assurances to the Council and the Council’s Internal Auditors’ assurance
over internal controls. The Governance Statement has been prepared in
accordance with CIPFA’s Delivering Good Governance in Local Government:
Framework (2016).
Annual report and Accounts include the Management
Commentary, Remuneration Report and the Governance
statement
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Overview – Wider Scope
This external audit annual report predominantly focuses on the Council’s
arrangements during the 2019/20 financial year. It is acknowledged that the Covid-
19 global pandemic fully emerged, impacting on the Council from the middle of
March 2020. Therefore, for the financial year Council business and activities
remained business as usually.
Due to the pandemic the Council needed to establish temporary governance
arrangements. This report includes commentary on those initial arrangements and
the governance established by the Council.
Whilst we will comment on certain aspects of the Council’s response to Covid-19, in
this report and in our 2020/21 annual report we are not auditing the Council’s full
Covid-19 response.
Our focus remains on considering the Council’s arrangements to ensure best value
and providing conclusions, relevant to our wider scope risk assessment.
Therefore in this report we have focused specifically on:
• Financial outturn for 2019/20
• Future financial sustainability with a focus on the financial position for 2020/21
• Governance and transparency as it relates to the immediate Covid-19 response
(period March 2020 to summer 2020)
• Performance management
• Workforce planning
Although, due to financial reporting matters, our audit was not concluded until
January 2021 our wider scope work was concluded by October 2020.
We anticipate new and/or emerging risks facing the Council, due to Covid-19 or
other matters will be articulated in our 2020/21 audit plan.
We note in discussions with Officers that due to the ongoing pandemic there is a
significant continued need to work with all partners, including Scottish Government
to make changes to plans and/or service delivery often at short-notice. As a result,
whilst financial forecasts are in place, there is a need to continue to review these
frequently particularly as new expenditure is required and ongoing dialogue over
what is funded, and what will be funded locally.
Best Value
Within the audit plan we set out the intention to follow up on the Council’s progress
in implementing the Best Value Improvement Plan. This followed the publication of
the Best Value Assurance Report (BVAR) by the Accounts Commission.
The Council’s BVAR action plan was presented to full Council in March 2020.
Therefore, recognising only approved in March and the Covid-19 pandemic we
have decided to follow up the action plan, in full, as part of our 2020/21 external
audit.
We recognise work of the Council’s Recovery Board, spans into certain of the
BVAR action plan including financial sustainability, workforce planning and
performance management. Where relevant to the 2019/20 audit we have provided
commentary within this report.
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Wider scope – significant risksWithin our annual audit plan we identified six significant wider scope risks. In this section we have summarised the risk identified and our conclusions. In addition, beyond
these risks additional considerations are set out in pages X to X across the wider scope and Best value framework.
Audit Plan wider scope significant risk: Financial Management
External Audit Conclusion
The Council achieved the 2019/20 budget set. Total actual expenditure was £561.3 million, £6 million lower than budgeted
expenditure. As a result, Council unearmarked reserves increased in year by £7.5 million. Total unearmarked reserves as
at 31 March 2020 were £15.4 million (2.7% of Revenue). This brings useable reserves within the reserves range retained
by other Local Authorities.
Staff costs were £11.5 million lower in year than budgeted. This was achieved through in-year cost control for example
holding recruitment and proactively managing vacancies. In addition, additional grants and investment income was
received, at £10.7million more than forecast.
As a consequence of Covid-19 no service performance outturn monitoring reports were prepared and considered at service
level. However, the Corporate Services Committee considered the Council wide revenue and capital outturn report. This
was a one off decision, taking into account the global pandemic from March 2020 onwards and also linked to the Covid-19
governance arrangements which were established on a temporary basis.
The Council delivered on the 2019/20
budget generating underspends which
allowed for an increase in general
unearmarked reserves in year. As at 31
March 2020 unearmarked reserves
represent 2.7% of revenue and will
provide additional financial support to
the Council in 2020/21 and 21/22 as the
financial pressures arising due to
Covid-19 emerge.
Extracted from our Audit Plan, which was written in March 2020:
For 2019/20 the Council faces significant financial challenges to address the identified budget gap of £27.891 million. In 2018/19, the Council reported an operational
overspend of £2.3 million. The overspend was due to operational costs pressures in year, particularly around the Care and Learning Service as well as failure to deliver in
year corporate savings targets, agreed within budgeting setting. We recognise the financial monitoring and cost management controls being put in place at the Council
along with a focus on forecast expenditure as part of the 2019/20 budget, there is a risk that these measures may have adverse implications on the Council’s performance
in delivering services and ability to deliver longer term, sustainable financial savings.
Work to respond to the risk: We reviewed the arrangements in place to identify and support the delivery of in year savings and how these were achieved. We
considered the budget setting and monitoring arrangements and how these support the Council deliver its financial targets. This work is aligned to our ‘Value for Money’
wider scope work in considering the impact if any of budget savings on operational performance.
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Audit plan wider scope significant risk: Financial Sustainability
External Audit Conclusion
As at 31 March 2020 the Council delivered planned savings as set out in its forecast. Looking forward, as at 30
September 2020 the Council is projecting an overspend of £8.7 million compared with budget for the 2020/21 financial
year. This is due to the impact of Covid-19.
Over the medium term the Council has estimated a significant budget gap, considering different scenarios. Due to
ongoing uncertainty around funding, the ongoing Covid-19 pandemic which is resulting in different costs and activity,
there is a recognised risk that the Council may no longer be financially sustainable.
The Council Recovery Programme has 11 key areas of activity:
Delivery of the recovery programme is reported to the Council recovery board. The Council is working on real time
reporting to the Board including use of dashboard style reporting to report on savings delivered and at-risk savings.
There are a total of 69 actions across the 11 streams. At as November 2020 50 were reported as ongoing and
remaining on track for delivery.
The Council faces significant future risks to
ensure it remains financially sustainable.
The impact (now and ongoing) of Covid-19 is
uncertain, including expenditure and any
associated additional income.
2020/21 will be a challenging financial year
for the Council. At the point of completing
our work (October 2020) it was anticipated
that the Council will need to use reserves
which were only just built up in 2019/20
alongside delivery of all agreed savings.
Extracted from our Audit Plan, which was written in March 2020:
A sustainable highland is the Council’s change programme. The programme identified savings of £20.5 million are required to deliver the 2019/20 financial position. In
prior years the Council has struggled to deliver forecast savings resulting in utilising funds from reserves. A key focus for the Council is delivering savings in year and
future years in order to support longer term financial sustainability.
Work to respond to the risk: We reviewed the Council’s financial plans and progress made against the plans. We considered the work performed by Officers in
identifying and evaluating potential options to address the budget gap, including the extent to which these represent sustainable savings and are aligned to the Council’s
priorities and commitments.
• Restoring political governance • Lockdown Agility (Returning to work)
• Supporting the Recovery of the Highland Economy • Community Empowerment
• Leadership, Culture and Performance • IT Transformation
• Digital Transformation • Service Redesign
• Workforce Planning and Development • Asset Management
• Financial Recover strategy
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Audit plan wider scope significant risk: Workforce planning
External Audit conclusion
Service workforce plans have been used to inform and create a corporate workforce plan. This has been informed by the
workforce planning strategy. Key themes outlined are sustainability, flexibility, transition and training and development.
The Council continue to have an ageing workforce and have also identified a need for the future workforce to be greater
aligned to the changing demands on services and broader service redesign planned. Previously the Council has had a
challenge in attracting individuals to the Highlands, particularly in more remote areas. This continues to be an area of focus by
the Council alongside how the Council can better use technology to support a more agile way of working.
Workforce planning is core to the Council’s recovery plan. Actions being taken include a PESTLE (Political, Economic,
Sociological, Technological, Legal and Environmental) review of the Workforce Planning Strategy to ensure aligned to current
relevant challenges and establishing a workforce data project to ensure that the Council has the data required to evaluate
workforce requirements and support workforce decisions. The current strategy is being reviewed in the context of Covid-19 as
well as the likely impact on the Council arising from the UK leaving the European Union.
Now the Council has a corporate
workforce plan, underpinned by
service workforce plans the
challenges identified need to be
proactively addressed. Covid-19
has allowed the Council to progress
quickly with greater use of digital
technologies and this will support
the Council to become more agile
and re-look at staffing needed in the
more remote areas of the Council
area. With staff costs being such a
significant cost to the Council,
future delivery of savings and
changing service delivery is
fundamental to making the Council
financially sustainable and to do
this the Council need to achieve the
workforce plan
Extracted from our Audit Plan, which was written in March 2020:
Workforce costs remain a significant area of expenditure with total costs of £295 million in 2018/19. Over the last two years, the Council has enhanced its workforce
planning arrangements. A new workforce planning strategy was developed in 2017 and supported through service workforce plans. The workforce strategy sets out a five-
year roadmap to allow the council to maintain and develop the workforce and enhance services provided. During 2018/19, the Council undertook a review of senior level
organisational structure. The redesign of the senior-level of the organisation created a Chief Operating Officer role and eight Executive Chief Officer posts, supported by
Heads of Services. It is envisaged that the design of services at Heads of Service and below will evolve over the coming years.
Work to respond to the risk: We assessed how the Council’s workforce strategy remained aligned to the financial strategy. We considered how the Council aligns its
workforce to areas of service demand, ensuring that resources, including staff spend, are focused on key operational pressures. We considered the new Senior
Leadership Structure and how this being embedded to support effective leadership, management and community engagement.
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Audit plan wider scope significant risk: Risk Management
External Audit Conclusion
The Council has in place a risk management strategy. This is reviewed annually with the results of the annual review presented to the
Audit and Scrutiny Committee. The Council has in place a corporate risk register and this is considered every six months by Audit and
Scrutiny.
Whilst the individual service committees do not get oversight of the corporate risk register, risk is embedded within service planning.
Reports to service committees do contain risk assessments and cross-refer to recognised risks facing the Council. There would be an
opportunity, when reviewing the risk management strategy to make this linkage clearer.
At an Officer level, the corporate risk register is considered routinely at Executive Leadership Team meetings. Alongside this, the
register is shared, at least every six months at the wider strategic meeting which includes representation of the various political groups.
Looking forward new and/or emerging risks are facing the Council and these should be captured and monitored in the relevant register
and through the best forum of governance. Lastly there is a further opportunity for the Audit and Scrutiny Committee to enhance their
review of the risk register by focusing on risks which have changed scores, the strategy and resultant actions to mitigate the risk and
assurance over the operation of the risk management strategy.
Action plan point - 4
Risk management
arrangements at the Council
could be further embedded
throughout the Council. This
includes reviewing the
oversight of the Council wide
risks impacting on the
Council and ensuring this is
done at the right governance
forum and these
arrangements are captured in
the risk framework.
Extracted from our Audit Plan, which was written in March 2020:
The Council’s risk management strategy was revised in March 2018 and a risk management culture continues to be embedded across the Council. Given ongoing
corporate governance changes it is key that risks continue to be identified, monitored and managed with sufficient governance oversight of risk established.
Work to respond to the risk: We have continued to develop our understanding of the Councils risk management arrangements in place including the extent to which
developments in the Council’s governance arrangements support effective management of risks. This has been done through review of the Council’s overall strategic
risk management arrangements including reporting to members.
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Audit plan wider scope significant risk: Partnership working with NHS Highland
External Audit Conclusion
The partnership agreement was due for review and renewal by 25 June 2020. Although work was ongoing between both parties to
review the agreement this work was put on hold due to Covid-19. The Council Chief Executive and NHS Highland Chief Executive
have written a joint letter to Scottish Government setting out the expectation that a revised agreement will be agreed by 31 March
2021.
The Council, alongside NHS Highland, recognise the ongoing financial pressure in delivering Adult Social Care services. However,
both organisations are facing increased financial difficulties. A project board has been established to identify and deliver efficiencies in
integrated care, with both organisations represented and new governance arrangements established.
The Council’s Executive Chief Officer for Health and Social care left the Council in April 2020 and an interim arrangement is in place
before the newly appointed Executive Director starts in January 2021. The principle model is agreed. However, the challenge is the
underlying funding of the model in the context of both the Council and the NHS’s future financial sustainability challenge. This is an
area we will consider further within our 2020/21 external audit and in particular the effectiveness of the revised governance
arrangements and the funding decisions agreed by both parties.
The Council and NHS
Highland continue to seek to
work proactively together to
ensure the lead agency
model is reviewed and any
revisions agreed by the
extended deadline of 31
March 2021. Given financial
pressures on both
organisations the
determination of the funding
the Council will provide to
the NHS will be key and how
this is then built into the
future savings plans of the
Council.
Extracted from our Audit Plan, which was written in March 2020:
It is important that there are effective partnership working with the Council and NHS Highland to ensure efficient and effect delivery of adult and children's health and
social care under the Lead Partnership model. The current Integration Scheme (the Highland Partnership) agreement ends on 31 March 2020. It is important that the
Council work with NHS Highland to ensure that any future agreement supports a sustainable, efficient and effective model of care and service delivery for the people of
the Highlands.
Work to respond to the risk: We assessed the progress made by the Council in reviewing and updating the Lead Agency model agreement between the Council and
NHS Highland.
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Audit plan wider scope significant risk: Performance Management
External Audit Conclusion
Data is collated from within and external to the Council, to support the Council in measuring its performance. Data available externally
typically has a time lag of circa 6 to 12 months of a year. This is out with the control of the Council as comes from external sources
and depends on when data is published. Following the BVAR report, improvement actions were agreed on performance management
and these are being taken forward by Officers. This includes, as part of service redesign, the development of business intelligence
(BI). The intention is this development will support the Executive Leadership Team and Service Management Teams with regular
performance review, on a monthly or quarterly basis. This revised approach has been captured in the 2021/22 service planning
guidance issued by the performance team.
SPI 2 sets out the requirements to demonstrate best value. In particular the Council should look to report on audit assessments of the
Council’s performance against best value and how the Council is responding. As part of our audit work we have confirmed Officers
have arrangements in place to report against this SPI by the deadline which is 31 March 2021. The BVAR improvement plan will be
included alongside this external audit annual report, which was delayed due to a delay in signing the accounts.
The Council continues to
make progress in developing
its performance management
arrangements. This includes
the positive development in
business intelligence.
Actions were captured in the
Council’s BVAR improvement
plan and we will follow up on
the arrangements in place, in
greater detail, when following
up on the BVAR action plan
in our 2020/21 external audit.
Extracted from our Audit Plan, which was written in March 2020:
The Council has 27 KPI’s designed to enable scrutiny of the delivery of Council services. However, these performance measures were predominately based on prior
period performance rather than established targets or benchmarks of performance.
The BVAR highlighted that the Council’s performance against national LGBF indicators has deteriorated over a five-year period. For 2017/18, 70 per cent of indicators sit
within the bottom two quartiles. The report highlighted the need for the Council to have greater focus on establishing targets, including referencing performance of other
parties in which to trigger improvement activity.
Work to respond to the risk: Whilst too early to assess how the Council has implemented the BVAR findings in this area, due to the BVAR action plan only being
approved by the Council in March 2020 and the impact of Covid-19 we have considered the performance reporting arrangements currently in place.
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Wider Scope Commentary
2019/20
£ million
Audit comment
Net underspend against
operational budgets
6 Overall service underspend against budget reflecting cost
management and delivery of service efficiency savings in
year.
Uncommitted general
reserves (as a percentage
of annual planned
expenditure)
15.4
(2.7%)
The Council’s unearmarked general reserves increased to
2.7% (2018/19: 1.4%) of annual budgeted expenditure. This
reserve represents the Council’s contingency to meet
unforeseen cost pressures in any given financial year.
Net assets 1,544.2 The Council’s net assets increased from £1.2 billion at 31
March 2019 to £1.544 billion as at 31 March 2020. This was
primarily due to a decrease in defined benefit pension
scheme liabilities of £38.7 million.
Financial Performance 2019/20
The Council reported total comprehensive income in 2019/20 of £131 million (2018/19: Expenditure:
£12 million). The was as a result of gains recognised in the remeasurement of the net defined
benefit liability of £142 million and a net surplus on the revaluation of property, plant and equipment
of £44 million. The net deficit on the provision of services for the year was £5.9 million (2018/19:
£5 million). Whilst the council reported a deficit for the year, this reflects the impact of accounting
adjustments (particularly pensions accounting entries)
The total revenue budget was £567.3 million, with the Council incurring expenditure of £561.3
million. The £6 million underspend against budget, coupled with other transfers between reserves
and statutory adjustments, alongside additional Scottish Government income enabled the Council
to increase the non-earmarked portion of the General Fund by £7.5 million to £15.4 million. This
represents 2.7% of the Council’s revenue budget (2018/19: 1.4%).
Financial management and financial sustainability
Key financial performance information
The year end position demonstrates the Council’s financial
management and cost control arrangements established in
2019/20. The main area of underspend against budget was in
relation to staffing costs, where expenditure was £11.5 million
below budget. This was primarily achieved through cost control,
including recruitment and vacancy management. In addition, funds
raised through services, government grants and investment income
was £10.7 million greater than budget.
In order to deliver a balanced budget in 2019/20 the Council had
identified a budget gap of savings £24.6 million, addressed through
increased income generation or efficiency savings. Of this total
target over £3 million was not achieved, with the Council required
to deliver in year efficiencies to support the outturn position.
2019/20
£million
Care and Learning – Underspend 6
Community Services - Overspend (0.1)
Chief Executive’s Office - Underspend 0.3
Development and Infrastructure - Underspend 0.2
Corporate resources - Underspend 1.6
Welfare - Underspend 0.1
Other (NDR reliefs / Joint Board requisitions
etc) - Overspend
(2.1)
Total Service Underspend against budget 6
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Capital expenditure and capital investment strategy
The Council approved a revised five year capital programme in March 2018 outlining planned £490 million of capital investment. During 2019/20 Council had net
capital expenditure of £155 million compared with a budget of £173 million, including Housing Revenue Account expenditure of £50.8 million (budget of £54.4 million).
The overall underspend of £17.9 million represented slippage in the programme. The slippage relates to a number of individual programmes where projected
expenditure was behind schedule or planned investment deferred to future years. While this can reduce short term revenue impact of reduced levels of borrowing, it
can put increased pressure on future years of the capital plan and on the use of the existing asset base. The main areas of capital investment in the year were:
• £9.7 million in ICT;
• £11.8 million investment in roads and bridges; and,
• £42 million investment in Housing stock.
Capital expenditure is funded through a mixture of capital borrowing, capital funding and receipts to support strategic investment.
In recent years the Council has underspent on its capital budget. Where planned capital spend has not been incurred the planned spend is deferred into the following
year. The Capital Plan is designed to ensure the Council’s estate remains fit for purpose and suitable to deliver the Council Services efficiently and effectively.
Therefore it is important that the plan is delivered minimising the delay in capital investment in the Council’s estate. Recent performance would indicate that the
Council’s capital budgets are unrealistic or achievable. It is important that capital plans reflect the Council’s true level of planned capital activity in year and set
achievable aspiration for the year. This should incorporate any carry forward from previous years.
Action plan point - 5
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2020/21 budget and recovery plans
For 2020/21 the Council are currently projecting an overspend against budget of £8.7 million (at January 2020). This is due to:
• £26 million overspend in services due to lost revenue / additional costs incurred as a result of Covid-19
• Covid-19 has adversely impacted on the services’ planned savings activity in year and therefore planned budgeted savings for 2020/21 will not be fully achieved
• Shortfall in Council tax income of £2.4 million primarily due to the impact of Covid-19 on council tax collection as well as the slower than expected rate of growth in
the council tax base (rateable properties)
This is partially offset through additional £12 million government income of which £7.7 million is in relation to Covid 19 support, there is still a shortfall against budget.
Management controls have been implemented to limit spend to items that directly relate to the COVID-19 response or the provision of essential services. Budget
holders have been informed that budgets are suspended and will only be released to services to meet essential spending requirements. It is anticipated that this
enhanced control over expenditure will provide an opportunity for savings to be achieved.
An initial assessment of action to mitigate the emerging budget gap highlighted the potential use of general funding reserves where some or all non-earmarked
reserves could be used to balance the Council’s budget.
Currently, the Council’s budget includes the planned use of earmarked reserves balances of £5.5 million. Whilst the use of reserves is expected, it is important that
there is transparent reporting and understanding of the level of reserves held to ensure that any decisions made are not purely short term in nature and support the
longer-term financial resilience and sustainability of the Council.
The Scottish Government, in conjunction with COSLA, is exploring different funding flexibilities to local authorities to help them manage the impact of Covid-19 on
their revenue positions in 2020/21 and 2021/22. Officers are considering what the impact of these arrangements will be and how suitable they would be for the
Council. We will consider this as part of Wider Scope audit work in 2020/21.
With the economic impact of Covid-19 uncertain there is an increased risk on the outturn position in terms of both revenue and cost base. The Council must continue
to maintain scrutiny of the underlying financial performance over the coming months and consider the impact both in the immediate to longer term implications of how
any overspend is met by the Council.
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Council Group – Highlife Highland and Eden Court
The Council works with several organisations to support service delivery. Two of these organisations: Highlife Highland and Eden Court Highlands may need to seek
financial support from the Council to meet cost pressures and loss of revenue associated with the impact Covid-19. Highlife highland is a wholly owned subsidiary of the
Council and consolidated into the Group financial statements. Eden Court Highlands is a Registered Charity with no share capital and the Council commission services
from but are not consolidated as part of the Councils’ Group.
As a result of the COVID-19 pandemic, both organisations face uncertainty as to when they can resume operations and how this will be executed. Eden Court Highlands
is projecting a loss of 80% of its total income up until the end of January 2021 but due to additional government funding is planning breakeven. Within High Life Highland,
despite a projected loss of £10 million in income, pro-active measures have been taken by the Board to mitigate losses and the latest forecasts show a £1.5 million deficit
in the financial year (September 2020). In addition, both entities are admitted bodies in the Highland Council Pension Fund and the Council has provided guarantees over
future pension contributions for these entities.
It is recognised that Highland Council retains a degree of risk if either of these organisations were to fail. The going concern of these organisations will be needed to
prevent greater financial on the Council. The Council have considered the medium to longer term viability of these organisations and are satisfied that there is no current
concerns that the bodies will not continue to meet the obligations as they fall due. However, the Council should continue to monitor this position closely and assess any
additional risk to the Council.
Management structure
Following the approval of the restructuring of the Council’s senior management team in 2018/19, the Council has sought to embed the new structure
including the recruitment of the eight permanent chief officer roles. Whilst most posts have been successfully filled, two posts at the time of our audit remain
interim appointments – Education and Learning and Transformation and the Economy.
In addition, one permanent appointment, the executive chief officer for Health and Social Care left the Council within six months of their initial appointment.
Between April 2020 and to date this role is being filled on an interim basis. The new Chief Officer, permanently recruited in October 2020 starts employment
with the Council in January 2021.
One temporary appointment included a consultant for the position of Executive Chief Officer, Education during the year. The use of a consultant has been
reviewed by internal audit with future lessons learned on how the Council’s processes to recruit to senior posts could be better articulated.
Overall, the level of turnover across senior officer positions within the Council, including interim appointments to Executive Chief Officer roles creates a risk
of instability across senior leadership. Given the financial and operational challenges facing the council, it is important that there is a stable, effective
leadership team in place creating senior capacity to support the organisation in the future, and embed the changes in culture planned.
Action plan follow up - 9
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Governance and transparency
Governance Structure
The large (74 members) and political make-up of the council (Independent group alongside other parties and non-aligned members) can at times, present a challenge to
effective decision-making, in particular balancing council-wide decisions aligned to council priorities alongside the needs of the local communities that elected members
represent.
The Council undertook a self-assessment of its governance arrangements in 2018/19 and 2019/20 recognising the opportunity to enhance scrutiny, governance, and
oversight. This has seen an increase in the number of strategic committees from three to six. This was in response to concerns that the previous committee remits were
too large, and the Council could instead benefit from having in place a larger number of committees with more focused remits. The Council has reduced membership
requirements from 25 to 18 members to ensure there is adequate resource and capacity to operate the increased number of committees effectively.
Effectiveness – Political discussions
From our review of committee webcasts and papers during the year we note that there is an increasing trend where it is taking longer to get through Council business. In
more recent examples full council has spanned two days. This may just be due to working remotely and members getting familiar with the teams platform, and how to run
effective meetings. Alternatively, based on our review there are instances where the discussions have started to become more operational in nature, and for Officers,
rather than discussion remaining at the strategic level. Care should be taken to ensure effective decision making can still take place and that the governance principles
established pre Covid-19 remain in place.
Action plan point - 6
Alongside the six strategic committees there were two new committees created in year – Gaelic Committee and the Tourism Committee. In addition, a Resources
Sub-Committee established, to provide additional scrutiny over the Council budget.
Running alongside is the newly created Recovery Board which reports to Council (see commentary on page X) and the strategic working group overseeing the
redesign programme.
As part of our 2020/21 external audit we will look to understand the remit of the respective governance committees and the strategic working groups. It is important
that governance and decision making is clear within the council structure and that the arrangements are effective, minimising duplication and ensure that the focus
does not become overly operational in nature, and decisions rest at Officer level.
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Openness and transparency and effective governance in response to Covid-19
A decision was taken to postpone all council and committee meetings during March 2020 and April 2020 due to Covid-19. This was a decision mirrored by
many public organisations and reflective of the fact that the Council, at that point in time, did not have an effective digital platform to host council meetings. The
decision to suspend meetings for this eight-week period was taken in consultation with the Leader of the Council, Convener and committee chairs.
Gold command structures
The Chief Executive established an officer gold COVID-19 group which included the Executive Chief Officers (ECOs) and other key staff. This group focused
on agreeing strategic priorities as the pandemic evolved.
A member gold COVID-19 group was also established consisting of the Chief Executive, the Convener, the leaders of the administration groups and the official
opposition group, the Budget Leader and the ECO for Performance and Governance.
Decisions in this early period, when committees were suspended, were taken under emergency powers. These have been published online to support
transparency and were retrospectively approved when full Council we reconvened.
In the period of May and June the strategic committees of the Council were held remotely using teams and these meetings were recorded. The intention was
for these meetings to deal with urgent business. This included the Council’s corporate resources committee.
Recovery Board
The member gold group set up the recovery board. The board consists of 15 members including the Leader of the Council. The Board’s purpose is to provide
strategic oversight and co-ordinate the Council’s recovery plan. Recommendations from this Board are reported to full Council for endorsement. Once this
Board was established, the Gold structure (Officer and Member groups) stood down.
The gold, silver, bronze command arrangements and the temporary suspension of meetings is like most Council’s. As the pandemic is ongoing, the Council
should continue to review their governance structures to ensure the remain flexible to meet changing external circumstances and continue to be transparent.
This can include lessons learned from the early arrangements established. Action plan point - 7
Partner organisations (Page 32)
A number of partner organisations support the Council in delivering services. Two of these entities: Highlife Highland and Eden Court may require financial support from
the Council in the current year due to the adverse impact of Covid-19 on revenue streams. The Council have considered the medium to longer term viability of these
organisations and are satisfied that there is no current concerns that the bodies will not continue to meet their obligations as they fall due. However, it is important, given
the ongoing uncertainty surrounding covid-19, that Officers and Elected Members continue to maintain an oversight of these bodies and any potential obligation should it
crystalise. This is important in ensuring the continuity of services being delivered on the Council’s behalf by these entities as well as ensuring the financial position of the
Council is maintained.
Action plan point - 8
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Value for money
Best Value Assurance Report
A Best Value review was undertaken by Audit Scotland and Grant Thornton during 2019 and the Best Value Assurance Report (BVAR) issued in January 2020. The
review found that the Council’s pace of change has been inconsistent and slower in areas such as improving performance management and ensuring longer term financial
sustainability. There is however recognition that the pace of change has significantly increased with the appointment of the Chief Executive in October 2018. The BVAR
highlights the persistent challenge faced by the Council in demonstrating that it is financially sustainable, as well as its ability to build its level of reserves to meet
unplanned costs. The report also reflects on the management restructure of the Council and the need for a period of stability to deliver the Council’s change and
improvement strategy.
A BVAR Improvement Plan has been created and presented to the Council for approval in March 2020. Some actions are already in place and being implemented to
address known/historic issues in relation to best value. In particular, within the Financial Management section of this report we have highlighted how the Council has
increased its unearmarked General Fund position through financial management in year to provide greater financial resilience. In addition, within the Value for Money
section of this report we have highlighted that the Council has refreshed its corporate performance monitoring arrangements to enhance monitoring and scrutiny.
However, it is too early to conclude on whether these represent the level of sustained transformation at the Council and whether the Council can demonstrate whether it is
achieving all aspects of Best Value through self-evaluation and continuous improvement. In particularly we note with the impact of Covid-19 is having adverse impact on
the Council’s ability to plan in a meaningful way given the constantly changing landscape. Given the Council’s focus on the response to the global pandemic and
subsequent recovery plans, we will undertake our full BVAR follow up in 2020/21.
We will undertake a full follow up of the BVAR recommendations as part of our 2020/21 external audit reporting on the status of the improvement plan in our Annual
Report to Members and the Controller of Audit.
Duty to secure best value
It is the duty of Highland Council to secure Best Value. The Act specifically outlines the following requirements:
• It is the duty of a local authority to make arrangements which secure best value.
• Best value is continuous improvement in the performance of the authority’s functions.
• In securing best value, the local authority shall maintain an appropriate balance among: the quality of its performance of its
functions; the cost to the authority of that performance; and, the cost to persons of any service provided by it for them on a wholly
or partly rechargeable basis.
• In maintaining that balance, the local authority shall have regard to: efficiency; effectiveness; economy; and the need to meet the
equal opportunity requirements.
• The local authority shall discharge its duties under this section in a way which contributes to the achievement of sustainable
development.
• In measuring the improvement of the performance of a local authority’s functions, regard shall be had to the extent to which the
outcomes of that performance have improved.
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The Local Government Benchmarking Framework (LGBF)
The Local Government Benchmarking Framework (LGBF) allows councils to compare their performance to the Scottish average for a variety of indicators. The council
reports annually on performance against the national LGBF performance indicators in the annual Statutory Performance Indicators (SPI) report.
While overall performance is improving in some areas, the Council still has considerable areas for attention to
enhance performance. The Council has identified reasons for performance within the bottom quartile and
some improvement actions to address these causes.
More analytical use of the data is needed by Council services to understand the factors that link performance
and resources, and to identify opportunities where self-assessment, redesign, and benchmarking can support
learning and improvement activity. This will provide greater clarity on the impact of Council budget decisions
and is now a requirement for Service Plan development within the Council.
The BVAR report included an assessment of the Council's performance against national LGBF
indicators and highlighted its deterioration over a five-year period. This was based on performance in
2017/18 where 54% of indicators fell within the bottom two quartiles, with an additional 16% unable to
be ranked. Indicators within the bottom two quartiles included areas that have been Council priorities
for several years such as education. For 2018/19, the Council had a total of 89 indicators which are
nationally benchmarked, 10 of which data was not available in order to rank. Of the available data,
Highland Council is in the top quartile for 19 indicators (21%). This is an improvement on the
performance reported in 2017/18 in which only 13% were ranked in the top quartile. However, in line
with 2017/18 reporting, 54% of indicators remained within the bottom two quartiles in 2018/19 as
represented in the chart below.
Value for money
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Statutory performance indictors
The Accounts Commission has a statutory power to define the performance information that councils must publish for performance comparison and benchmarking
purposes. It fulfils this power by issuing a Statutory Performance Information (SPI) Direction to councils. The Accounts Commission published an updated direction in
December 2018. This requires the Council to report on SPI 1: Improving local services and local outcomes, and SPI 2: Demonstrating best value, with effect for financial
year ended 31 March 2020.
Under SPI 1, the Council is required to report on:
• Performance in improving local public services, provided by both (i) the council itself and (ii) by the council in conjunction with its partners and communities.
• Progress against the desired outcomes agreed with its partners and communities.
The SPI guidance anticipates that these indicators will reported assessing the Council’s performance over time as well as compared to other authorities using the Local
Government Benchmarking Framework.
In reporting against SPI 2: Demonstrating best value the guidance requires authorities to report on:
• The council’s assessment of how it is performing against its duty of Best Value, and how it plans to improve against this assessment.
• Audit assessments of its performance against its Best Value duty, and how it has responded to these assessments.
• In particular, how it (in conjunction with its partners as appropriate) has engaged with and responded to its diverse communities.
The Council publishes a range of performance information through the Council’s website. This includes: financial reports; Council Tax Fact sheet, providing a summary
on how Council tax payers money is used; Highpoints Magazine, council priorities and business plans and performance reports.
We are satisfied that the Council has sufficient arrangements in place to fulfil its responsibilities in accordance with SPI 1 and SPI 2.
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Appendices
36
Audit adjustments
Action plan and recommendations
Follow up of prior year recommendations
Audit fees and independence
Fraud arrangements
Communication of audit matters
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Audit adjustmentsCorrected misstatements
Item Dr (£’000) (Cr) (£’000) Description
1
CIES – IAS 19 Past Service Costs (taken to Pension
Reserve)
(5,876) Being adjustment within the IAS 19 pension valuation to reflect the Actuarial
present value of promised retirement benefits to reflect the proposed remedy
to the “McCloud ruling”, a court judgement that pension schemes were
unlawful on the grounds of age discrimination that impacts on future liabilities
of LGPS schemes (Take through Pension Reserve)IAS 19 - Pension Liability 5,876
2Cash & cash equivalents 4,252
Being adjustment raised by client to reflect creditor payment instructed on 31
March 2020 but not clearing bank until 1 April 2020.Creditors (4,252)
3Short term debtors 1,465
Being adjustment to include capital grant relating to March 2020 which was
excluded in error from the debtor balance as at 31 March 2020.Capital grants in advance (1,465)
4Short term debtors 160
Adjustment to recognise capital grants relating to 2019/20 within the financial
statements for the year ended 31 March 2020. Capital grants (160)
5
CIES – IAS 19 Past Service Costs 2,906 Being adjustment to recognise the actuarial estimation of the impact of GMP
indexation on defined benefit pension obligations (Taken through Pension
Reserve).IAS Pension liability (2,906)
6Assets under construction 8,221
Being adjustment to reclassify Council house development land from Surplus
assets to Assets under construction Surplus property (8,221)
7
PPE – Other land and buildings (4,205)
Being journal required to write off Portree Hostels now demolished and not
appropriately impaired through revaluation. CIES – Impairment (taken to CAA) 2,396
Revaluation Reserve 1,809
8
HRA – Loss on Disposal 3,249
Reclassification to recognise loss in disposal rather than impairmentHRA Depreciation, impairment & write off (3,249)
During our audit we identified five misstatements to the Council financial statements and one to the Group only accounts which were corrected by Officers:
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Item Dr (£’000) (Cr) (£’000) Description
9
CIES – Depreciation, revaluation & impairment – taken
to Capital Adjustment Account(12,347)
Being adjustment to reflect impact of revaluation adjustments to the financial
statements
Capital adjustment account (through MIRS) 944
Revaluation reserve (through OCI) 146,262
Assets under construction 29,964
PPE – Other land and Buildings (126,693)
PPE – Council Dwellings (29,959)
PPE – surplus assets (8,221)
Item
Dr
(£’000)
(Cr)
(£’000) Description
1
Investment Property 30,950 Being adjustment to separately recognise Investment Property from Property,
Plant and Equipment on the face of Balance Sheet as a separate category of
assets in accordance with the Code. Note this is a disclosure only adjustment as
the assets are appropriately valued as Investment PropertyProperty, plant and equipment (30,950)
Overall Impact on the Financial Statements
Group accounts
Balance Sheet
CIES Current Assets Non-Current
Assets
Current
Liabilities
Non-current
Liabilities
Reserves
£’000 £’000 £’000 £’000 £’000 £’000
Per draft financial statements (267,598) 160,399 2,938,615 (357,053) (1,200,712) (1,541,249)
Impact of prior period restatement on opening balances (see prior period
adjustments)97,878 (97,878)
Restated prior period balance (267,598) 160,399 3,036,493 (357,053) (1,200,712) (1,639,127)
Adjusted misstatements (adjusted misstatements) 135,993 5,877 (139,114) (5,717) 2,961 135,993
Final accounts (131,605) 166,276 2,897,379 (362,770) (1,197,751) (1,503,134)
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Prior year adjustments
During the course of our audit work we also identified a number of adjustments to the
prior year financial statements. These are detailed in Note 3 to the Council financial
statements and Note 9 to the Group Accounts and summarised below. We note there
is no overall impact on the Council’s General Fund:
Adjustments to opening prior year balance sheet as at 1 April 2018
Dr
(£’000)
(Cr)
(£’000) Description
Property, plant and
equipment
43,554 Being revaluation adjustment to opening
comparative balance sheet as at 1 April
2018 reflecting the net increase in PPE
balances at that date. Note all revaluation
movements restated have been taken to
opening reserves position.
Revaluation reserve (43,554)
Adjustments to prior period financial statements 2018/19
Dr
(£’000)
(Cr)
(£’000) Description
Property, plant and
equipment
97,878
Being prior year adjustment to
restate the valuation of property,
plant and equipment as at 31 March
2019 and associated adjustments to
annual depreciation and revaluation
movements through CIES, OCI and
reserves. We note this is cumulative
adjustments to those shown above in
1 April 2018 .
Revaluation of non-current
assets – Opening B/S
adjustment (above)
(43,554)
2018/19 Depreciation
charge(2,748)
2018/19 Impairments (17,263)
Surplus on revaluation of
PPE – 2018/19(34,313)
In addition to the Council prior period adjustment which are reflected through to the
consolidated Group accounts, our audit also identified a misstatement in relation to
the Council’s Group balance sheet. The Group financial statements includes the
results of the Nairn Common Good Fund and Inverness Common Good Fund.
These funds both hold Investment Property. Within the unaudited accounts,
Investment Property was included within the Group Property, Plant and Equipment.
In accordance with the Code, these assets should be disclosed as a separate
category of assets. As these are material to the financial statements, the prior year
comparators have been restated as detailed below. We note that this is a disclosure
impact only with no impact on the Council’s Group revaluation position.
Adjustments to opening prior year balance sheet as at 1 April 2018
Dr
(£’000)
(Cr)
(£’000) Description
Investment Property 29,556 Being separate recognition of Investment
Property from Property, plant and
equipment in the Group Opening
comparator balance sheet as at 1 April
2018.
Property, Plant and
Equipment(29,556)
Prior year adjustments - Group
Adjustments to prior period financial statements 2018/19
Dr
(£’000)
(Cr)
(£’000) Description
Investment Property – opening
balance sheet adjustment
29,556
Being adjustment to recognise
opening restatement of
Investment property and
addition and impairment
movements in the prior year.
Property, Plant and Equipment
– opening Balance(29,556)
PPE – Revaluation and
addition movements(467)
Investment property –
revaluation and addition
movements
467
Our audit testing has also identified that Council Dwellings under construction have been incorrectly been
included within Council Dwellings and therefore should be reclassified as Assets Under Construction. This
does not impact the carrying value of PPE The following reclassifications have been made between
Council Dwellings and Assets under construction. 31 March 2018: £ 1.5 million, 31 March 2019: £7 million
as part of the prior year adjustment correction.
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Uncorrected misstatements
During our audit we identified a number of misstatements to the financial statements. Officers have not adjusted for these misstatements on the basis they are not material to
the financial statements. We are satisfied that these misstatements are not individually or cumulatively material to the user of the accounts either quantitatively or
qualitatively.
Item
Dr
(£’000)
(Cr)
(£’000) Description
1
Creditors (5,121) Being adjustment to recognise
maximum factual and extrapolated
errors in identified in expenditure cut-off
testing. Actual errors identified of £2
million and extrapolated error of £3.1
million.
CIES
Expenditure5,876
2
CIES – Service
Income398 Being extrapolated projected
overstatement of central government
debtors based on errors identified in
audit sample testing. Short term
debtors(398)
3
CIES -
Expenditure1,131 Adjustment to correct balance sheet
position due to misstatement of
PPP/Service concession models due
incorrect application of indexation. Closing PFI
Lease Liability(1,131)
4
Debtors – Non-
current250 Being correction of recognition of soft
loan issued incorrectly recognised as a
capital addition within property, plant
and equipment.Surplus assets (250)
Item
Dr
(£’000)
(Cr)
(£’000) Description
5
CIES –
Impairment of
PPE
309Being correction of error in revaluation
of property due to overstated floor
measurements. Note correction would
be through the revaluation reserve. PPE - OLB (309)
6
Depreciation
(Capital
adjustment
account)
309
Being incorrect recognition of
depreciation / revaluation movements
in year.Revaluation
gains
(revaluation
reserve)
(309)
7
Cash and Cash
equivalents(4,252)
Being adjustment to restate creditors
and cash and cash equivalents to
reflect the underlying ledger position as
at 31 March 2020 (timing of clearance
of payments)Creditors 4,252
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Disclosure misstatements – Corrected
During the course of our audit work we identified a number of disclosure
adjustments required to the draft financial statements. The following are those
adjustments that have been amended in the signed financial statements.
Item Description Adjusted
1
Material
valuation
uncertainty
The Council has updated the Council only and Group accounts to
reflect the impact of the material valuation uncertainty in relation
to the valuation of land and buildings and Investment Property.
2
Accounting
policies -
REFCUS
The Council has updated the accounting policies to detail how
Revenue Expenditure Funded by Capital Under Statute is
accounted for in the financial statements.
3
Accounting
policies – fair
value
measurement
The Council has updated its accounting policies to describe fair
value measurement in the financial statements in line with the
requirements of the Code.
4 IFRS 16The Council has updated the accounts to reflect the CIPFA /
LASAAC deferral of adoption of IFRS 16 until 1 April 2022.
5Prior year
adjustment
Note 3 (Council Only) and Note 9 (Group) accounts have been
added to the financial statements to disclose the impact of the
prior year adjustment in accordance with the Code.
6Critical
judgements
The Council has updated the critical judgements note in the
financial statements to include judgements around the
recognition of PPP / Service concession arrangements as
meeting the definition of Service concession arrangements in line
with IFRIC 12 and the Code
7Cash flow
statement
The cash flow statement has been updated in the current year to
separately disclosure
8 EFA
Presentational adjustments were required to the EFA in the
current year to ensure consistent with Net Expenditure in the
CIES.
9Related party
disclosuresThe Council has updated the related party disclosure
Item Description Adjusted
10Interests in
associates and
joint ventures
The Council only financial statements do not provide sufficient detail
around the recognition and measurement of the Council’s associates
and joint ventures in the Council and Group accounts. While we are
satisfied that these interests are appropriately accounted, there is an
opportunity to enhance the Council’s accounting policies around
these.
11 Group accounts
The Notes to the Group accounts have been updated to comply with
the requirements of the Code by disclosing detailed notes where the
balance / value in the consolidated accounts is materially different to
the Council only accounts. This includes:
- Additional disclosure on Investment Properties
- Additional Group disclosure on IAS 19 Defined benefit pension
obligations
- Disclosure on Financing and Investment Income and Expenditure
at the Group Level
12
Disclosure
notes to the
accounts –
Debtors
The debtors notes to the accounts required updating to explain to
the reader the allocation of impairment charge in year.
13Remuneration
report
Remuneration report updated to provide greater detail on individual
emoluments paid to officers in the prior year but whom no longer are
in post.
14Disclosures -
McCloud
The Council has updated disclosure notes in the financial statements
around the inclusion of McCloud remedy within the financial
statements.
15 HRA Disclosure
The HRA Statement has been updated to excluded impairment of
debtors of £1.934 million. This was correctly reflected in the CIES
statement and was only a disclosure error in HRA.
16Events after the
reporting period
The note has been updated to reflect events since the balance sheet
date and the
17Movement in
Reserves
The Group Movement in reserve statement has been updated to
reflect the Council’s share of total comprehensive income and
expenditure in the year, excluding transactions with group bodies.
The prior period discloses have been also amended accordingly.
18Charitable,
Education and
Trust funds
The Charitable Education and Trust Funds disclosures were updated
to report the highland Council Charitable Trusts Investments and
Funds at Market Value rather than Cost, as reflected in the Charities
accounts. This does not impact on the council of Group financial
statements.
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Disclosure misstatements – Uncorrected
During the course of our audit work we identified a number of disclosure adjustments required to the draft financial statements. The following are those adjustments that the
Council has not amended on the grounds that they are not material to the financial statements. Officers have proposed that they will revisit these proposals in preparation
of the 2020/21 financial statements. Audit are satisfied the misstatements are not individually or cumulatively material to the user of the accounts.
Item Description Misstatement
1 IFRS 15
The Council’s accounting policies on revenue recognition do not cover the full disclosure requirements required by IFRS 15, including the five
step approach to considering revenue from contracts with customers. We are satisfied that the Council’s revenue is recognised in accordance
with the Code and IFRS 15 and do not consider the disclosure misstatement to be material to the accounts.
2
Interests in
associates and
joint ventures
The Council only financial statements do not provide sufficient detail around the recognition and measurement of the Council’s associates and
joint ventures in the Council and Group accounts. While we are satisfied that these interests are appropriately accounted, there is an
opportunity to enhance the Council’s accounting policies around these.
3
Critical
judgements
The Council draft accounts disclosed critical judgments around future local government funding. Following audit recommendations, Officers
added critical judgements around the accounting treatment of PPP / Service concision arrangements on the basis that the assets and liabilities
are recognised in accordance with the Code as qualifying as service concision arrangements. The current disclosure could be enhanced to
provide the reader a greater understanding around the critical judgement made by Officers in preparing the accounts and the impact on the
accounts. In addition, we do not consider local government funding uncertainty as a Critical Judgements in the accounts.
4
Assumptions
made about
future and other
Major sources
of Estimation
uncertainty
The Council’s unaudited financial statements included the following areas of significant risk of material adjustment in the forthcoming financial
year: property, plant and equipment; LGPS pensions liability; debtor provisions; and Council tax provisions. From review of the disclosure, we
do not agree with the Council’s conclusion that debtors or Council tax provision as major sources of estimation uncertainty as given their current
carrying value we do not consider these balances to be of significant risk of material misstatement in 2020/21. Furthermore, there is an
opportunity to enhance the disclosure in the accounts around material valuation uncertainty through providing greater detail around the
sensitivity of these estimates and the impact on the financial statements.
5
Financial
Instruments
disclosure
The Council’s Financial instruments disclosure should detail the current carrying value of financial assets and financial liabilities as well as there
fair value and how this fair value is arrived at. The Council does not have an accurate measure of the fair value of PFI liabilities and therefore
has used carrying value as an approximate. Similarly, while the majority of the Council’s financial assets are call accounts and debtors, the fair
value for long term debtors is currently reported at amortised cost (carrying value). While we do not consider this disclosure to be material to
the user of the financial statements, the disclosure should report on the fair value of financial assets and liabilities in accordance with the code.
The disclosure should also include detailed around the nature and extent of the financial risks to the Council and how these are managed.
6Cash flow
statement
The code requires specific disclosure requirements within the Council’s cash flow statement and supporting notes. This includes separating the
movement in debtors from the movement on the impairment of debtors. Similarly, while the current year cash flow statement has been
restructured to separately show the proceeds from the sale of PPE and Net Book Value of the sale, the prior year comparators just disclose the
gain /loss on disposal. Note the net movement in prior year is immaterial (£715k and gross movements below PM) and therefore satisfied no
restatement is required.
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Item Description Misstatement
7Segmental
reporting
The Council Report Segmental Income there is an opportunity to enhance the reconciliation between Segmental Reporting information and the
EFA / CIES statements to provide the reader of the accounts a greater understanding around the reconciliation between internal reporting and
the outturn position. We are satisfied that the Council’s financial statement disclosures are free from material misstatement but recommend the
Council review these to further enhance the reader of the accounts understanding of financial performance.
8HRA
Disclosures
The net expenditure from HRA services reported in the HRA statement in 2018/19 does not reconcile to the CIES statement in the prior year.
This was due to the inclusion of impairment of debtors of £1.875 million in cost of services element of the HRA statement rather than shown in
the finance and investment line within the accounts. We are satisfied that this prior year disclosure error is not material to the financial
statements and does not impact on the CIES disclosures.
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Action plan and recommendations
Recommendation Agreed Officers response
1. Property, plant and equipment valuation (Page 12)
Officers should ensure that a more robust valuation processes is established to consider the extensive portfolio of
assets held to ensure they are valued with sufficient frequency to ensure they are not materially misstated in the
accounts. This exercise should consider those assets not subject to formal revaluation in year to ensure there is no
indication of material movement in carrying value.
Furthermore, to ensure there is appropriate review and scrutiny of the Council’s valuation process, the annual
valuation should be reported through a formal revaluation report, summarising the key assumptions made in the
valuation and scope and limitations of the valuers work. Given the significance of the carrying value of property,
plant and equipment and the level of estimation and judgement around the valuation, it is critical that Officers
ensure they have robust processes in place for the effective review, scrutiny and challenge of the Council’s
valuation to ensure that assets continue to be valued in accordance with the Code and RICS guidance.
Officer response: for assets not included in the
formal valuation desktop estimations of changes
in value will be requested, checked for material
changes and if required these will be used to
update the reported values. The valuation
process will be initiated with a formal instruction
from Finance Service and the Internal Valuer will
supply a formal valuation report in return.
The Council will review its structures and
process across its property and valuation teams
to drive improvements in the asset valuation
process.
Action owner: Head of Corporate Finance and
Head of Development and Regeneration. ECO
Housing and Property
Timescale for implementation: 09.04.21 and
30.9.21
2. Accounts preparation (Pages 15, 16 & 19)
Our audit testing identified a number of quantitative and qualitative misstatements to the financial statements.
While we recognise 2019/20 had unique challenges, including the impact of Covid-19 on financial reporting
arrangements, it is important that the Council has sufficient resources to support the preparation of the accounts,
including internal review and scrutiny prior to audit inspection. In particular, the Council should review
arrangements to ensure completeness and accuracy of income and expenditure transactions around the year end,
confirming that the thresholds applied by Officers is suitable to ensure financial statements are materially correct.
The Council should have sufficient review of the financial statements, including accounting policies and disclosures,
to ensure that the requirements of the Code of Practice on Local Authority Accounting in the United Kingdom have
been met. This review should incorporate the Management Commentary contained within the financial statements
to provide the reader of the accounts a clear understand of the Council’s financial performance during the year.
Officer response: The Council will look to amend
year end processes and realign resources to
facilitate increased checks of income and
expenditure for completeness and accuracy and
for review of the accounts prior to submission to
The Auditor
Action owner: Head of Corporate Finance and
Commercialism
Timescale for implementation: 31.03.21
We have set out below, based on our audit work undertaken in 2019/20, the significant recommendation arising from our audit procedures.
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Recommendation Agreed Officers response
3. Objection to the financial statements – Insurance Fund Administration (Page 17)
There is an opportunity to enhance the transparency around the application of the Fund, including greater evaluation
and reporting of the internal insurance risk being held by the Council through reducing the level of Insurance cover.
Good practice recommends regular actuarial assessment of the Insurance Fund to quantify the risk being managed
by the Council and therefore better inform Officers and Councillors around the level of Insurance Fund that the
Council should maintain.
Officer response: The Council will look to
increase reporting of the insurance fund to the
Resources Committee and give consideration to
conducting an actuarial assessment of the fund.
Action owner: Head of Corporate Finance and
Commercialism
Timescale for implementation: 30.06.21
4. Risk management (Page 24)
There is an opportunity to re-review the risk management strategy (framework for the Council). This includes setting
out which management groups review risk, when and for what purpose and the same for groups with political
representation and ultimately reporting at Committee level. This will better demonstrate the link between service
committees and their responsibilities on risk and the Audit and Scrutiny Committee. Lastly, as a result of Covid-19
and Brexit there is an opportunity to refresh the Council wide risks, and Council response to manage or mitigate risk.
Officer response: The Council’s Risk
Management Strategy will be reviewed to ensure
links are demonstrated by June 2021. COVID
risks are managed on a continuous basis through
the Officer GOLD group. Brexit risk is under
continuous review by the Brexit Tactical Group
feeding into regular reporting to ELT and Audit &
Scrutiny. Quarterly and six-monthly reporting will
be sustained during the COVID crisis.
Action owner: Corporate Audit & Performance
Manager
Timescale for implementation: June 2021
5. Capital plan (Page 28)
Recent performance would indicate that the Council’s capital budgets are unrealistic or unachievable having
underspent against budget by £17 million in the current year. The Council’s infrastructure is important in supporting
the efficient and effective delivery of services. The Council must balance the cost of financing capital projects
against the revenue implications of running with ageing or unsuitable infrastructure. It is important that capital plans
reflect the Council’s true level of planned capital activity in year and set achievable aspiration for the year. This
should incorporate any carry forward from previous years.
Officer response: The Council has reprofiled its
capital plan which was presented to Members in
January 2021. Work is ongoing through the
officer Strategic Asset Management Group
(which comprises the ECOs for Housing and
Property, Finance and Resources and
Infrastructure and Environment) to develop the
Council’s capital strategy which will help focus on
capital programme deliverability and affordability
as well as taking a long-term view on the
requirement for investment in the Council’s
assets.
Action owner: Strategic Asset Management
Group
Timescale for implementation: 30.9.21
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Recommendation Agreed Officer response
6. Political discussions (Page 31)
The level of discussion and debate, particularly at full Council, can be operational rather than strategic and this has
resulted in meetings taking much longer than planned, to get through the agenda. Officers and Elected members
should continue to work together, to ensure the papers and subsequent discussion and debate support a strategic
focus.
Officer response: Council and Committee Agendas
are being reviewed to ensure a strategic focus
and reports will be adjusted to remove operational
detail. Guidance to be provided to Committee
Chairs to assist in the management of meetings in
addressing where members raise operational
matters in the course of discussion. A Training
session is being arranged with the Standards
Commission which will also cover the distinction
between strategic and operational.
Action owner: ECO Performance & Governance
Timescale for implementation: July 2021
7. Recovery Board (Page 32)
The gold, silver, bronze command arrangements and the temporary suspension of meetings is like most Council’s.
As the pandemic is ongoing, the Council should continue to review their governance structures to ensure the
remain flexible to meet changing external circumstances and continue to be transparent. This can include lessons
learned from the early arrangements established.
Officer response: Council agreed on 7 January
that wherever possible decisions would be taken
through the Council’s standard formal governance
arrangements and there is a full schedule of
Committee, Council and Board meetings planned
throughout the coming months to provide for this
and there is scope to arrange urgent meetings
under the current Standing Orders to provide for
flexibility. This is facilitated by the successful
transition to online meeting platforms that were
not available at the start of the first lockdown
period. Should very urgent action be required as
a consequence of the emergency situation that
can’t wait for committee approval then this will be
reported to Members within a week and published
on the Council’s website for full transparency.
However, it is not envisaged that this will happen
often, if at all. The situation will be kept under
regular review.
Action owner: ECO Performance and Governance
Timescale for implementation: January 2021
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8. Partner organisations (Page 32)
A number of partner organisations support the Council in delivering services. It is important, given the ongoing
uncertainty surrounding covid-19, that Officers and Elected Members continue to maintain an oversight of these
bodies and any potential obligation should it crystalise. This is important in ensuring the continuity of services being
delivered on the Council’s behalf by these entities as well as ensuring the financial position of the Council is
maintained.
Officer response: Financial risks associated with
partner organisations will be considered as part of
the 2021/22 budget setting process and will
continue to be reported on as part of regular
budget monitoring as has happened in the current
financial year.
Action owner: Head of Corporate Finance
Timescale for implementation: Ongoing
Recommendation Agreed Officer response
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Follow up of 2018/19 recommendationsWe set out below our follow up of our 2018/19 recommendations and these are reflected below for information.
Recommendation
1. Valuation of property, plant and equipment
To comply with the requirements of the 2018/19 Code, items of property, plant and equipment are required to be held at their current value. For assets subject to
valuation, this requires valuations to be undertaken with sufficient frequency to ensure that the carrying value of PPE is not materiality different to its current value i.e.
the value of the assets if they had been revalued as at 31 March 2019. During our audit further work was required from Officers and the internal valuer to demonstrate
that those its of PPE not subject to revaluation in the year were not materially misstated. Through consideration of Officers assessment, we are satisfied that PPE is
not materially misstated. However, we recommend that Officers, working with in-house valuers review the rolling programme of valuations to ensure these are
conducted with sufficient regularity to ensure not materially misstated.
The 2018/19 Code requires Council houses to be measured at Existing Use Valuer – Social Housing as a measure of fair value. This is lower than cost. Council
houses have not been subject to revaluation since 2017 and therefore two years worth of additions are valued at cost. While we are satisfied Council houses are not
materially overstated, we recommend that as part of Officers review of revaluation programmes they ensure that Council house additions are considered as part of this
process
Initial Officer response
The rolling programme will be reviewed to ensure asset values are reported as accurately as possible and in compliance with the CIPFA code
Follow up – Superseded See Action Plan Point 1
2. Financial management
Our audit testing found inconsistent practices on how budget monitoring reports were prepared across the Council with some services receiving actual spend to date
information based on live financial ledger data, while others were based on adjusted data. While not material to monitoring of underlying performance, it is important
that financial monitoring reports are prepared on a consistent basis across the organisation.
Initial Officer response
A review of reporting arrangements will take place to ensure all reports are produced on a consistent basis
Follow up – Closed
Financial reporting arrangements have been revised to ensure a consistent approach adopted over financial monitoring information.
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Recommendation
3. Financial challenges
In August 2019, Officers undertook an exercise to forecast the financial outlook over the next three years covering 2020/21 to 2022/23. This highlighted the scale of the
financial challenges facing the Council with a potential funding gap of between £50.2 million (most optimistic) and £77.3 million (most pessimistic) over the three year period.
While this incorporates the previously identified financial pressures, it represents a significant challenge for the Council to deliver and will require transformational change.
During 2018/19, the Council failed to deliver £2.7 million of the targeted £13 million savings targets. This has been a recurring theme at the council over the last three years
with shortfalls in delivering savings of £1 million and £0.5 million in 2016/17 and 2017/18 respectively. In addition, the Council’s Care and Learning Service has failed to
operate within budget over the last three years as the Council has challenges in managing Looked after children and Additional Support Needs in a financially sustainable
operating model.
Initial Officer response
The Council acknowledges the scale of the financial challenge and has a well-established change programme and change fund in order to deliver the transformation
required. The change programme focuses on savings which are challenging to deliver.
Increased governance of spend is resulting in better management of historic areas of overspend and plans to provide long term solutions to these issues will be factored into
the 2020/21 budget process.
Follow up – Ongoing
The Council faces significant future risks to ensure it remains financially sustainable. The impact (now and ongoing) of Covid-19 is uncertain, including expenditure and any
associated additional income.
2020/21 will be a challenging financial year for the Council. At the point of completing our work (October 2020) it was anticipated that the Council will need to use reserves
which were only just built up in 2019/20 alongside delivery of all agreed savings.
Action owner: Executive Chief Officer- Resources and Finance
Timescale for implementation: Ongoing
4. Reserves and sustainability
The Council faces significant financial challenges over the coming years. The Council’s non-earmarked reserves play a critical role in supporting the Council meet any
additional investment required in strategic transformational programmes as well as manage any unforeseen expenditure that could not be met through in year resources. As
at 31 March 2019, the Council’s non-earmarked reserves balance represents 1.4% of the annual revenue budget. This was a reduction of 0.2% from the position as at 31
March 2018. Overall General Fund balances are one of the lowest across Scottish Local Authorities.
It is critical as the Council develop savings plans that consideration is made of reserve balances to ensure these are sufficient to provide contingency and opportunity for
future strategic investment.
Initial Officer responseThe Council agreed in February 2019 as part of its approved 3 year revenue budget that it would seek to restore non-earmarked balances to a 3% of revenue budget target
level. Budget assumptions from 2020/21 onwards factor in an annual £2m increase in this reserve. It is intended that the Change fund will continue into 20/21 to provide
funding for strategic investment in change.
Follow up – Complete
The Council’s 2019/20 financial performance enabled the Council to grow the unearmarked general reserves position from 1.4% of annual revenue budget to 2.7%. We note
that 2020/21 will be a more challenging financial year however the reserves should support the Council in managing any service overspend.
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Recommendation
5. Workforce planning
With a commitment to no compulsory redundancies and limited resources through the change fund or through reserves to absorb potential costs of a significant voluntary
severance programme, the Council is limited in options in terms of addressing financial challenges through reducing staffing resource costs. Given the short term financial
pressures facing the Council, there is a risk that there is a focus on in-year cost control. It is critical that resource decisions continue to focus on the Council’s long term
strategy.
Initial Officer response
Resource decisions, in particular around staffing, are taken with both the short and long term implications in mind. The Resources Governance Board, which has senior
officer and Member representation, has a key focus on all workforce-related decisions
Follow up – Complete
A key element of the Council’s Recovery Programme is the workforce planning and development. To deliver a sustainable operating model it is critical that the Council
maximises the use of its workforce resources ensuring that work plans are aligned to key council priorities and remain agile to support transformational change required to
support the Councils recovery. The Council has in place both Officer and Member oversight to ensure workforce planning plays a key role in the Council’s recovery activity
and transformation..
6. Governance arrangements
Officers and Members have recognised opportunities to enhance governance arrangements both to enhance oversight and scrutiny as well as ensuring a continued focus on
local issues and priorities. Recommendations for overall strategic governance arrangements are expected in September / October Council with further recommendations
around Local Communities in future meetings. A number of the recommendations raised are in line with our own observations as the Council’s external auditors. It is
important that throughout and after the review there is continuous self assessment and engagement with members to ensure these arrangements remain effective.
Initial Officer response
Arrangements for the review of the Audit and Scrutiny Committee were agreed at Council in June 2019 and will be implemented from September 2019 Committee. Currently
self-assessment is through Council Redesign and Peer Review supported by Lean processes, the Council has recognised this needs to be strengthened and the first steps
are to work with CIPFA on supported self-assessment using the CIPFA FM Model with the ambition to be a 5-star accredited organisation for financial management. Further
work is starting to review approaches to corporate self-assessment in local government in Scotland with early options being considered of adopting an existing EFQM based
model or building a bespoke model for Highland.
Follow up – Complete
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Recommendation
7. Performance Management
The Council’s Corporate Plan for 2019-22 provides a framework required to deliver and monitor the Council’s strategic programme “Local Voices, Highland Choices” along
with the strategic, operational and improvement priorities of the Council as reflected within the Council’s budget strategy and change programme “A Sustainable Highland”.
During 2019, the Council has acknowledged that it requires greater focus on improving performance across the Council and that pivotal to this is a positive cultural change
through embedding a consistent approach to improvement and constructively challenging performance and ways of working. While we recognise that there is a greater
focus within the measures on outcomes, it is too early to determine whether the reporting and monitoring of these will also focus on wider benchmarking data and the extent
to which these measures stretch and challenge the organisations. It is critical that the Council ensure that there is continued focus on targeted outcomes and not just
improvement on prior year measures.
Initial Officer response
Following Member engagement on SMART indicators and targets the new Corporate Plan (CP) approved in May 2019 (targets in September 2019) was reported to Council
in October 2020 focusing on a new approach to the annual performance report shifting from action based reproting to KPI reporting against targets. This new approach will
enable reporting against the stretch targets set as well as trends over time establishing a more robust approach to measuring the outcomes set in the plan. As the CP
measures are almost exclusively made up of the Council’s 27 KPIs and LGBF benchmark indicators against a 2017/18 baseline there will be an early opportunity to report
against both benchmark targets and trends for 2019/20 to Council in March 2021 through the Local & National SPI annual report which will also pick up on the new Audit
Direction around Best Value.
Follow up – Closed
The Council continues to look to develop its performance monitoring arrangements and has looked to develop corporate performance during the year. The Council publishes
a range of performance information through the Council’s website. This includes: financial reports; Council Tax Fact sheet, providing a summary on how Council tax payers
money is used; Highpoints Magazine, council priorities and business plans and performance reports.
8. Capital Expenditure (2017/18 Outstanding Recommendation)
During 2017/18 the Council underspent against capital by budget by £59.3 million. This was due primarily relates to slippage on key projects of £66.8 million, partly offset by
overspends of £7.4 million. The slippage relates to a number of individual programmes where project expenditure was behind schedule or planned investment deferred to
future years, putting increased pressure on future years.
While we recognise that some of the programme slippage was intentional to support financial position, there is a opportunity with the new, more affordable plan to deliver the
capital programme in line with planned budget and thus avoid delayed investment in Council assets or pressure on operations in future years.
Follow up – Superseded 2019/20 Action Plan Point - 5
The Council £17.9 million of slippage as at 31 March 2010. It is critical the capital programme remains a key area of focus to ensure strategically important capital
investment is completed in line with capital programme. The Capital programme has revenue consequences through the impact of loans charges and cost of borrowing. In
addition, where there is delays in the investment in infrastructure this can also lead to additional costs in maintaining and operating from ageing infrastructure. It is therefore
important that the Council continue to look to support the delivery of the capital programme.
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Recommendation
9. Strategic Leadership and Tone From the Top (2017/18 Outstanding Recommendation)
Elected Members and senior management team play a critical role in both developing and delivering the Council’s strategic goals. During 2017/18, the Council’s Chief
Executive announced his retirement effective from November 2018 and the Director of Care and Learning, the Council’s largest service is also due to retire. The
Council is currently in the process of recruiting for positions. Given the financial and operational challenges facing the Council and likely difficult decisions that it will
face, it is critical that there is a strong leadership team in place to meet these challenges.
Follow up
Following the restructuring of the Council’s senior management team in 2018/19, the Council has sought to embed these new structures across the organisation as well
as recruit appropriate individuals to fill the executive chief officer roles that support the Chief Executive as part of the Council’s senior leadership team. While the
Council has recruited to five of the eight posts, it has faced challenges in making permanent recruitment across Education and Learning; Health and Social Care and
Transformation and Economy. As at November 2020, each of these posts are currently filled on an interim basis. One temporary appointment included a consultant for
the position of Executive Chief Officer, Education during the year which included consultancy fees Given the financial and operational challenges facing the council, it
is critical that there is a stable and effective leadership team in place with the capacity and capability to support the organisation through challenging times while
maintaining a focus on delivering strategic objectives and statutory services.
Updated comment: The ECO Team has 6 permanent appointments and 2 interim. The whole team, under the Chief Executive’s leadership, works together very
effectively and has a strong corporate strategic focus. The reorganisation of the Council has introduced significant and wide ranging changes to the Council’s Service
and management structure that would ordinarily have taken some time to work through and fully establish. The advent of a national pandemic has impacted on the this
as the focus has, unavoidably and appropriately, moved to resilience and response ahead of internal re-structuring. Nevertheless, the effectiveness of the whole senior
team has meant that service delivery, financial management, emergency response and COVID recovery are all being taken forward successfully. The ability to put
interim posts in place has greatly assisted this in delivering capacity, capability and responsiveness in an agile way.
The intention is still to complete the senior management and service restructure at the earliest opportunity and it is anticipated this will be concluded by the middle of
2021 at the latest.
Action owner: The Chief Executive
Timescale for implementation: July 2021
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Independence and ethics
• We confirm that there are no significant facts or matters that impact on our independence as
auditors that we are required or wish to draw to your attention.
• We have complied with the Financial Reporting Council’s Ethical Standards and therefore we
confirm that we are independent and are able to express an objective opinion on the financial
statements.
• We confirm that we have implemented policies and procedures to meet the requirements of the
Financial Reporting Council’s Ethical Standards.
• We are required by auditing and ethical standards to communicate any relationships that may
affect the independence and objectivity of the audit team.
• We can confirm no independence concerns have been identified.
Audit fees and independenceExternal Audit Fee
Fees for other services
Client service
We take our client service seriously and continuously seek your feedback on our external audit
service. Should you feel our service falls short of expected standards please contact Joanne
Brown, Head of Public Sector Assurance Scotland in the first instance who oversees our portfolio
of Audit Scotland work ([email protected]). Alternatively, should you wish to raise your
concerns further please contact Jon Roberts, Partner and Head of Assurance, 30 Finsbury
Square, London, EC2A 1AG. If your feedback relates to audit quality and we have not
successfully resolved your concerns, your concerns should be reported to Elaine Boyd, Assistant
Director, Audit Scotland Quality and Appointments in accordance with the Audit Scotland audit
quality complaints process.
Service Fees £
External Auditor Remuneration 251,600
Pooled costs 24,140
Contribution to Audit Scotland costs 14,910
Contribution to Performance Audit and Best Value 132,200
2019/20 Fee 422,850
Service Fees £
At planning stage we confirm there are no non-audit
fees
Nil
Audit of Highland Council Charitable Trusts 1,000
Audit of Highland Charities Trust 1,000
Highland Charitable Trusts and Highland Charities Trusts are not
consolidated into the Group financial statements on the basis the
financial results of these entities are not material to the Group
accounts. The audit fees for the charities above are therefore not
disclosed in the Council Group financial statements and instead
disclosed in the individual charity’s accounts.
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The term fraud refers to intentional acts of one or more individuals amongst
management, those charged with governance, employees or third parties
involving the use of deception that result in a material misstatement of the
financial statements. In assessing risks, the audit team is alert to the possibility
of fraud at the Highland Council.
As part of our audit work we are responsible for:
• identifying and assessing the risks of material misstatement of the financial
statements due to fraud in particular in relations to management override
of controls.
• Leading a discussion with those charged of governance (for the Council
this is assumed to be the Audit and Scrutiny Committee) on their view of
fraud. Typically we do this when presenting our audit plan and in the form
of management and those charged with governance questionnaires.
• designing and implementing appropriate audit testing to gain assurance
over our assessed risks of fraud
• responding appropriately to any fraud or suspected fraud identified during
the audit.
As auditors we obtain reasonable but not absolute assurance the financial
statements as a whole are free from material misstatement, whether due to
fraud or error.
We will obtain annual representation from management regarding
managements assessment of fraud risk, including internal controls, and any
known or suspected fraud or misstatement.
The primary responsibility for the prevention and detection of fraud rests with
management and those charged with governance including establishing and
maintaining internal controls over the reliability of financial reporting effectiveness and
efficiency of operations and compliance with applicable laws and regulations.
It is the Highland Council’s responsibility to establish arrangements to prevent and
detect fraud and other irregularity. This includes:
• developing, promoting and monitoring compliance with standing orders and
financial instructions
• developing and implementing strategies to prevent and detect fraud and other
irregularity
• receiving and investigating alleged breaches of proper standards of financial
conduct or fraud and irregularity.
Throughout the audit we work with the Highland Council to review specific areas of
fraud risk, including the operation of key financial controls. We also examine the
policies in place, strategies, standing orders and financial instructions to ensure that
they provide a strong framework of internal control.
All suspected frauds and/or irregularities over £5,000 are reported to Audit Scotland by
us as your auditors on a quarterly basis.
Fraud arrangements
Anti-Money Laundering Arrangements
As required under the Money Laundering, Terrorist Financing and Transfer of Funds Regulations 2017 there is an obligation on the Auditor General (as set out in
the planning guidance) to inform the National Crime Agency if he knows or suspects that any person has engaged in money laundering or terrorist financing.
Should we be informed of any instances of money laundering at the Highland Council we will report to the Auditor General as required by Audit Scotland.
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© 2021 Grant Thornton UK LLP.
55
Communication of audit mattersInternational Standards on Auditing (UK) (ISA) 260, as well as other ISAs, prescribe matters which we are required to communicate with those charged with
governance, and which we set out in the table below.
Our communication plan Audit Plan
Audit
Findings
Respective responsibilities of auditor and management/those charged with governance
Overview of the planned scope and timing of the audit, including planning assessment of audit risks and wider scope risks
Confirmation of independence and objectivity Confirmed, no matters to report.
A statement that we have complied with relevant ethical requirements regarding independence. Relationships and other matters
which might be thought to bear on independence. Details of non-audit work performed by Grant Thornton UK LLP and network firms,
together with fees charged. Details of safeguards applied to threats to independence
Significant matters in relation to going concern None identified although commentary included on financial sustainability
alongside going concern commentary.
Views about the qualitative aspects of Highland Council’s accounting and financial reporting practices, including accounting policies,
accounting estimates and financial statement disclosures Included within the report.
Significant findings from the audit Included within the report
Significant matters and issues arising during the audit and written representations that have been sought Included in this report
and letter of representation obtained at date of signing.
Significant difficulties encountered during the audit None identified.
Significant deficiencies in internal control identified during the audit None identified. We have raised opportunities to enhance the
processes in place at the Council around the financial statements production.
Significant matters arising in connection with related parties None identified.
Identification or suspicion of fraud involving management and/or which results in material misstatement of the financial statements.
None identified.
Non-compliance with laws and regulations None identified
Unadjusted misstatements and material disclosure omissions Reported in Appendix 1 of this report.
Expected modifications to the auditor's report, or emphasis of matter. Emphasis of matter in relation to the material uncertainty
in respect of the valuation of property, plant and equipment.
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© 2020 Grant Thornton UK LLP.
‘Grant Thornton’ refers to the brand under which the Grant Thornton member firms provide assurance, tax and advisory services to their clients and/or refers to one or more member firms,
as the context requires. Grant Thornton UK LLP is a member firm of Grant Thornton International Ltd (GTIL). GTIL and the member firms are not a worldwide partnership. GTIL and each
member firm is a separate legal entity. Services are delivered by the member firms. GTIL does not provide services to clients. GTIL and its member firms are not agents of, and do not
obligate, one another and are not liable for one another’s acts or omissions.
grantthornton.co.uk
The contents of this report relate only to the matters which have come to our attention, which we believe need to be reported to you as part of our audit reporting process. It is not a
comprehensive record of all the relevant matters, which may be subject to change, and in particular we cannot be held responsible to you for reporting all of the risks which may affect
the entity or all weaknesses in your internal controls.
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Grant Thornton UK LLP 110 Queen Street Glasgow
28 January 2021
Dear Sirs
The Highland Council Financial Statements for the year ended 31 March 2020
This representation letter is provided in connection with the audit of the financial statements of the Highland Council its subsidiary undertakings, High Life Highland, Nairn Common Good Fund, and Inverness Common Good Fund for the year ended 31 March 2020 for the purpose of expressing an opinion as to whether the Group and Council financial statements are presented fairly, in all material respects in accordance with International Financial Reporting Standards and the CIPFA/LASAAC Code of Practice on Local Authority Accounting in the United Kingdom 2019/20 and applicable law.
We confirm that to the best of our knowledge and belief having made such inquiries as we considered necessary for the purpose of appropriately informing ourselves:
Financial Statements
i. We have fulfilled our responsibilities for the preparation of the group and Council’s financial statements inaccordance with International Financial Reporting Standards and the CIPFA/LASAAC Code of Practice onLocal Authority Accounting in the United Kingdom 2019/20 ("the Code"); in particular the financial statementsare fairly presented in accordance therewith.
ii. We have complied with the requirements of all statutory directions affecting the group and Council and thesematters have been appropriately reflected and disclosed in the financial statements.
iii. The Council has complied with all aspects of contractual agreements that could have a material effect on thegroup and Council financial statements in the event of non-compliance. There has been no non-compliancewith requirements of any regulatory authorities that could have a material effect on the financial statements inthe event of non-compliance.
iv. We acknowledge our responsibility for the design, implementation and maintenance of internal control toprevent and detect fraud.
v. Significant assumptions used by us in making accounting estimates, including those measured at fair value,are reasonable. This includes accounting estimates in relation to the valuation of land and buildings, includingcouncil dwellings and Investment Property. We have disclosed the material uncertainty in relation to thevaluation of land and buildings as at 31 March 2020. We have disclosed the material valuation uncertainty inrelation to the valuation of Investment Property as at 31 March 2020 within the Group accounts.
vi. We have reassessed the valuation of land and buildings as at 31 March 2018 and 31 March 2019 and haverestated these balances within the Council and Group financial statements. We are satisfied that theassumptions applied by the valuer in this desktop restrospective valuation are appropriate and in accordancewith the Code. We are satisfied that the material judgements used in the preparation of the financial statementsare soundly based, in accordance with the Code and adequately disclosed in the financial statements. Wehave considered property, plant and equipment not subject to revaluation in year and are satisfied that theseare not materially misstated as at 31 March 2020. We confirm that sufficient prior period adjustments havebeen disclosed in the financial statements in accordance with the Code.
vii. We confirm that we are satisfied that the actuarial assumptions underlying the valuation of pension schemeassets and liabilities for IAS19 Employee Benefits disclosures are consistent with our knowledge. We confirm
AGENDA ITEM 3B71
that all settlements and curtailments have been identified and properly accounted for. We also confirm that all significant post-employment benefits have been identified and properly accounted for.
viii. Except as disclosed in the group and Council financial statements:
a. there are no unrecorded liabilities, actual or contingent
b. none of the assets of the group and Council has been assigned, pledged or mortgaged
c. there are no material prior year charges or credits, nor exceptional or non-recurring items requiringseparate disclosure.
ix. Related party relationships and transactions have been appropriately accounted for and disclosed inaccordance with the requirements of International Financial Reporting Standards and the Code.
x. All events subsequent to the date of the financial statements and for which International Financial ReportingStandards and the Code require adjustment or disclosure have been adjusted or disclosed.
xi. We have considered the adjusted misstatements, and misclassification and disclosures changes schedulesincluded in your Audit Findings Report. The Group and Council financial statements have been amended forthese misstatements, misclassifications and disclosure changes and are free of material misstatements,including omissions.
xii. We have considered the unadjusted misstatements schedule included in your Audit Findings Report andattached. We have not adjusted the financial statements for these misstatements brought to our attention aswe consider these to be immaterial to the results of the Council and the Group and its financial position at theyear-end. The financial statements are free of material misstatements, including omissions.
xiii. Actual or possible litigation and claims have been accounted for and disclosed in accordance with therequirements of International Financial Reporting Standards.
xiv. We have no plans or intentions that may materially alter the carrying value or classification of assets andliabilities reflected in the financial statements.
xv. The prior period adjustments disclosed in Note 3 to the Council only financial statements and Note 10 of theGroup accounts are accurate and complete. There are no other prior period adjustments to bring to yourattention.
xvi. We have considered those interests in Highland Opportunity Limited, Eden Court Highlands, Tain, Dornoch,Cromarty and Invergordon Common Good Funds, and the Council’s Charitable, Educational and Other TrustFunds and are satisfied that these are not material to the Group and therefore have been excluded fromconsolidation from the Group Accounts.
xvii. We have updated our going concern assessment in light of the Covid-19 pandemic. We continue to believe thatthe Group and Council’s financial statements should be prepared on a going concern basis and have notidentified any material uncertainties related to going concern on the grounds that current and future sources offunding or support will be more than adequate for the Council’s needs. We are satisfied that there is nointention by the government to discontinue the Council’s operations or transfer functions outwith the publicsector. We believe that no further disclosures relating to the Group and Council's ability to continue as a goingconcern need to be made in the financial statements
Information Provided
xviii. We have provided you with:
a. access to all information of which we are aware that is relevant to the preparation of the group andCouncil’s financial statements such as records, documentation and other matters;
b. additional information that you have requested from us for the purpose of your audit; and
c. access to persons within the Council via remote arrangements, in compliance with the nationallyspecified social distancing requirements established by the government in response to the Covid-19pandemic from whom you determined it necessary to obtain audit evidence.
xix. We have communicated to you all deficiencies in internal control of which management is aware.
xx. All transactions have been recorded in the accounting records and are reflected in the financial statements.
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xxi. We have disclosed to you the results of our assessment of the risk that the financial statements may bematerially misstated as a result of fraud.
xxii. We have disclosed to you all information in relation to fraud or suspected fraud that we are aware of and thataffects the group and Council, and involves:
a. management;
b. employees who have significant roles in internal control; or
c. others where the fraud could have a material effect on the financial statements.
xxiii. We have disclosed to you all information in relation to allegations of fraud, or suspected fraud, affecting thefinancial statements communicated by employees, former employees, analysts, regulators or others.
xxiv. We have disclosed to you all known instances of non-compliance or suspected non-compliance with laws andregulations whose effects should be considered when preparing financial statements.
xxv. We have disclosed to you the identity of the Group and Council's related parties and all the related partyrelationships and transactions of which we are aware.
xxvi. We have disclosed to you all known actual or possible litigation and claims whose effects should be consideredwhen preparing the financial statements.
Remuneration report
xxvii. We are satisfied that the disclosures within the remuneration report are complete and sccurate and have beenprepared in accordance with the Local Authority Accounts (Scotland) Regulations 2014.
Annual Governance Statement
xxviii. We are satisfied that the Annual Governance Statement (AGS) fairly reflects the Council's risk assurance andgovernance framework and we confirm that we are not aware of any significant risks that are not disclosedwithin the AGS.
Narrative Report
xxix. The disclosures within the Management Report fairly reflect our understanding of the Group and Council'sfinancial and operating performance over the period covered by the financial statements.
Approval
The approval of this letter of representation was minuted by the Council’s Audit and Scrutiny Committee at its meeting on 28 January 2021.
Yours faithfully
Name……………………………
Position……Executive Chief Officer, Resource and Finance (Section 95 Officer)
Date…………………………….
Signed on behalf of the Highland Council
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Appendix 1: Unadjusted misstatements
ItemDr (£’000)
(Cr) (£’000)
Description
1
Creditors (5,121) Being adjustment to recognise maximum factual and extrapolated errors in identified in expenditure cut-off testing. Actual errors identified of £2 million and extrapolated error of £3.1 million.
CIES - Expenditure 5,121
2
Cash & cash equivalents (4,252) Being adjustment to restate creditors and cash
and cash equivalents to reflect the underlying ledger position as at 31 March 2020 (timing of clearance of payments)Creditors 4,252
3
CIES – Service Income 398 Being extrapolated projected overstatement of
central government debtors based on errors identified in audit sample testing. Short term
debtors (398)
4
CIES - Expenditure 1,131 Adjustment to correct balance sheet position due
to misstatement of PPP/Service concession models due incorrect application of indexation. Closing PFI
Lease Liability (1,131)
5
Debtors – Non-current 250 Being correction of recognition of soft loan issued
incorrectly recognised as a capital addition within property, plant and equipment (Note corresponding adjustment account through Capital Adjustment Account and Capital Fund).Surplus assets (250)
6
CIES – Impairment of PPE
309 Being correction of error in revaluation of property due to overstated floor measurements. Note correction would be through the revaluation reserve.PPE - OLB (309)
7
CIES - Depreciation (Capital adjustment account)
309 Being incorrect recognition of depreciation / revaluation movements in year.
OCI - Revaluation gains (Revaluation Reserve)
(309)
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